Sometimes, things do not work out between employer and employee, which may force you to terminate a team member. Depending on your experience as a business owner, you may not know how to assemble a proper severance package.

Forbes provides several items to add to a severance package. Find out how to protect your company while doing what is right for departing employees.

Severance pay 

Depending on the terminated employee’s original agreement, company policy or federal mandates, you may owe an employee severance pay. Employees may want a greater severance pay, or they could want a lump sum payment rather than several individual payments. Also, account for federal, state and local employment and income taxes when determining severance pay.

Medical benefits 

Employees with health or medical coverage before termination can continue receiving coverage for as many as 18 months after termination, according to the Consolidated Omnibus Budget Reconciliation Act. The employee takes care of the premiums, and you cover COBRA payments. Some employees opt for a taxable lump sum, and they may also want to continue receiving disability or other employee benefits after termination.

Vacation/Paid time off

Departing employees may have unused vacation and PTO pay. You must pay this sum either on the employee’s termination day or within a few days of termination.

References

Terminated employees may want you to agree to give them a positive reference for future employers as part of the severance package. You have the legal option of letting potential employers know the employee worked at your company and remains in good standing.

Do not let a lack of business litigation knowledge put you in hot legal water. Craft a severance package that makes all parties feel protected.