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It's really strange to me that companies in the US can just determine how much severance they're "willing" to pay. Why is it even up to them?
by xenospn 7y ago
It's really strange to me that companies in the US can just determine how much severance they're "willing" to pay. Why is it even up to them?
- niij 7y agoBecause it's coming out of their pockets.
- xenospn 7y agoSame in Israel, but it's mandatory to pay a months' wages for every year you worked at the company. The employer has to pay into a fund that the employee can cash out when they're let go.
- r00fus 7y agoSo are payroll taxes, and they're not "up to the company". We can see from the priorities how workers have been left out of the decision making for decades in the US.
- BlueDingo 7y agoAren't they though? My understanding is that they pay the payroll taxes on behalf of the employees but I think they aren't required to, it's just customary. If you're an independent contractor you pay it yourself.
- r00fus 7y agoContractors aren't payroll, they're technically AP/suppliers. If you do payroll, you pay taxes - it's the law.
- freepor 7y agoIn some cases it’s not, some states like California enforce minimums, but when they are going beyond the minimum then it’s obviously up to them.
- CptJamesCook 7y agoIn the US every company pays unemployment insurance. When employees are laid off, they receive unemployment benefits from this fund until they find a new job (for up to 39 months). Severance is the company "willing" to paying the laid-off employee more money than unemployment insurance.
- Igelau 7y ago> for up to 39 months You spelled weeks wrong.
- matthewowen 7y agoworth noting that this severance is vastly more generous than you'd get from statutory redundancy in most (all?) countries. the UK is one week's pay for every year, but with a maximum of £538/week and a maximum of 20 years for length service. given that a software engineer who's been at AirBnB for two years is going to get 16 weeks of pay and probably makes _at least_ 180k/year, they're probably getting around $55k.
- Beldin 7y agoNL: starting point is one month per year of employment. There's more detail to it, but that is the starting point. This compensation does not sound "vastly more generous", but not bad for those that were less than 5 years employed.
- _dps 7y agoThis is in practice just a deferred salary scheme. Since the mandate attaches an unavoidable additional liability to every year of employment, that will get rolled into the total cost of employment by accountants. So yes, when you collect the deferred salary it feels generous. But you were getting less salary up until that point in order to make the system solvent. One may well prefer this arrangement, but one can't evaluate the generosity of the payment without also accounting for the cost that made it possible.
- lonelappde 7y agoHow is it unavoidable? If the employee leaves on their choice, is severance paid?
- dgoldstein0 7y agoI think they mean unavoidable from the company's point of view - they can't make you quit, so when they hire you, they have to assume if they ever need to lay you off, they'll need to afford your severance.
- jklein11 7y agoMost employees in the US are hired at will. This means that the companies are not obligated to continue to offer their employees work. Severance is usually paid by the employer so that the employee agrees to leave amicably and does not sue for wrongful termination. Which country do you live in? Is it common practice for all employees to have severance negotiated as part of an employment contract? What happens if the employee decides to leave the employer before the contract expires?
- dbaggerman 7y agoIn Australia it's not negotiable. Our employment laws dictate what severance payment is required if a company is letting people go to reduce costs. Those laws don't apply if the employee leaves of their own accord, or if they are fired for other reasons.
- closeparen 7y agoIs that in addition to or instead of unemployment insurance? That’s probably the most similar construct in the US.
- dbaggerman 7y agoI suppose it would be "instead of". Unemployment insurance isn't really a thing here.
- closeparen 7y agoThen the situation is maybe not so different? It's an amount you're entitled to when laid off, set by the government, which your employer has to fund proactively (payroll taxes). Because it's set by the government, it caps out at well below a typical tech worker's burn rate, so it's little more than a brake on the depletion of our savings. When a tech company offers severance it's typically much, much more than what the government guarantees. You also get the full amount regardless of how long you're unemployed, so e.g. if you get laid off with 7 weeks severance and find another job in 3 weeks, that's a free month of salary.
- Spooky23 7y agoFor a variety of reasons, unemployment is a split federal/state responsibility funded by insurance. The framework was established back in the Social Security Act of 1935. Unemployment is administered and has rules developed by states that need to meet Federal standards, and the feds fund parts of the system and keep the state funds solvent. Benefits vary greatly. It has been awhile since I worked with this stuff, but IIRC Massachusetts is the highest payout ($750+) and places like Alabama, Florida, Mississippi and Arizona are <$300. Severance is usually part of an employee contract (if one exists) or commonly part of an agreement at separation where the employer gets some benefit (waiving the right to sue, etc).
- verst 7y agoI am not sure why you are being downvoted. It seems that much of HN has very little knowledge of (and interest in) business operations and employment law in other countries. I see your question as genuinely inquiring about this stark difference from what is common in Europe and other countries.
- jklein11 7y agoI didn't downvote the OP but I am picking up a tone of indignation that I don't quite understand. I find this pretty interesting. Here is my take on the situation: Let's say I own a widget factory and you are highly skilled at turning paper clips into widgets. We agree on a price for your time and I hire you to start making widgets. Things are going gangbusters, you produce a ton of widgets and I pay you for the time you spend working for me. All of a sudden people stop buying widgets. I no longer need your services so I have you stop coming in and stop paying you for your time. I don't understand why I should be obligated to pay you for services you didn't provide. It's not like I can go to my customers and ask them to pay me for widgets I didn't sell them.
- cecilpl2 7y agoYou own a factory. Your employees don't. There's a power imbalance in the employment relationship. Most people (who don't own things like factories) need a regular, predictable, stable income to survive, and finding new employment is not always easy. Therefore, people in most developed countries have agreed that by taking on an employee, it is contingent on the employer to provide some guarantee of stability. This is borne out by laws restricting firing in many cases, and requiring severance pay in the event. The USA is an aberration in this regard - even the workers seem to value the rights of the employers far above the rights of the employees. I'm not sure why this is.
- louisswiss 7y ago> even the workers seem to value the rights of the employers far above the rights of the employees. I'm not sure why this is. To paraphrase a famous quote, in the USA the workers don't see themselves as workers, but as temporarily down-on-their-luck owners.
- sneakypenguin68 7y agoHow else would it be done?
- entangledqubit 7y agoFrom what I understand, severance is also often offered as incentive to sign some kind of exit/termination agreement.
- matchagaucho 7y agoIt’s an essential part of the Silicon Valley formula to encourage risk taking. Grow fast and flame out? That’s ok. Shut it down as gracefully as possible and try again.
- eru 7y agoUnless you specifically negotiate something in the employment contract up front, they could just fire people and only pay out the notice period. Severance pay is voluntary. So of course they can decide how much they want to pay.
- meddlepal 7y agoI mean, as an American... I'm not even sure why companies give severance pay in the first place. It doesn't feel like something they should be obligated to do.
- elihu 7y agoI'd guess it's mostly to maintain morale among the remaining employees. People who are on the fence between staying or leaving are a bit more likely to stick around if they know they'll get a severance package if they're laid off but nothing if they quit.
- evandijk70 7y agoThe employment contract is usually for an indeterminate amount of time. Breaking that contract is why severance pay is required.
- 1-more 7y agoLabor day is celebrated on May 1st around the world in honor of the events of the Haymarket Affair, where the Chicago police attacked striking workers. But in the US it is celebrated at the end of summer. This is not an accident, and is directly connected to your question.
- ewidar 7y agoNever realised that, great way to make a country forget its history.
- astura 7y agoBecause there's no legal requirement to pay any sort of severance in the US. Just like, for example, there's no legal requirement to pay employees bonuses, so bonus pay is at the employer's sole discretion. In fact, salary itself is at the employer's sole discretion other than complying with minimum wage and overtime laws. It's been my experience that severance for rank-and-file employees is rarely offered and is very miniscule if it is paid.