When you are constructing a termination package for an employee, there are two common methods of offering payment. Even though any amount that you offer will effectively be in lieu of their regular salary for a set period, this amount can be offered in a lump sum, or as a period of salary continuance.
Most employers prefer offering salary continuance because it allows them to easily build in what is known as a clawback. An employer is only responsible for keeping a former employee whole until they find new employment, and they are responsible for looking in earnest. A clawback can say that the employee’s pay will extend for a set number of weeks unless the employee finds new employment, in which case they must inform their former employer and they will then receive half of the remaining amount. A lump sum, on the other hand, does not have clawback provisions, and offers an employee their money up front.
There are advantages and disadvantages to both options from the perspective of taxes, benefits and logistics, so it is always best to consult with an employment lawyer before offering up a package.
