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What are Termination Benefits?

By Victoria Blackburn
Updated May 16, 2024
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Termination benefits are settlements owed to an employee who no longer works for an employer. The settlements that are due to a terminated employee vary depending on the reason for termination, job title, and status of the employee at termination, as well as the policy and procedures of the employer. The laws that govern the employer and the location of the organization can also play a factor in the termination benefits that are awarded.

The benefit eligibility for terminated employees depends a great deal on the reason for the termination, which can be either voluntary or involuntary. Voluntary termination benefits are employee benefits due to those employees who voluntarily terminate their employment. Most times, employees decide to end their employment in exchange for a specialized benefit package.

On the other hand, involuntary termination benefits are provided to those employees who do not have a choice in the matter of their employment. Usually, the employer will communicate the plan for termination to the employees in advance, but there is no negotiation possible for continued employment. Depending on the situation, the employees may or may not be eligible for termination benefits.

Termination benefits can be withheld from employees who do not follow the proper policies and procedures of the company for which they work. Others who voluntarily resign their position are eligible for certain benefits if they follow the guidelines set by the employer. Employees who are asked to leave their position or become a victim of downsizing or lay-offs may receive some or all of the benefits that were offered to them as an active employee.

Most termination benefits are not paid out indefinitely, but are time-limited and have a predetermined date when the benefits will end. Many of the requirements that define the eligibility of employee benefit packages also define the criteria for termination benefit packages. Employer benefit requirements depend on the size of the business and the number of employees, plus any legally mandated requirements regarding benefits for employees.

Employee benefits consist of a variety of features that are provided to employees that are actively working for an employer. Common benefits offered by employers often include health plans, retirement plans and stock options, to name a few. Termination benefits may consist of some or all of the benefits the employee had while employed. At termination, these may be paid out as monetary amounts over time, a lump sum payout or an extension of other benefits, such as a pension.

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Discussion Comments

By everetra — On Dec 27, 2011

@David09 - That’s a great story. I’ve heard that in down economies it may take people six months or longer to find a new job so your situation is definitely the exception to the rule.

Of course, I think it would have even been better if you could have found a new job a week later and then pocketed all that severance, but either way you weren’t out on the street.

I especially envy certain employees, like executives, who get the proverbial “golden parachutes” when they exit. In their case their termination benefits may be in the millions of dollars and these guys could be set for life. It’s a pity that people like us are just lowly folks on the totem pole.

By David09 — On Dec 26, 2011

My defined benefits plan worked out great when I was let go. I had been with the company for about 8 years and their policy was that you got a week in severance for every year that you worked at the company. That came out to two months.

However, they had let me go around the Christmas season (ho, ho, ho), but to their credit they realized that nobody out there would be hiring in December. So the CEO threw in an extra month in severance. This made my complete severance package three months.

It worked out perfectly. I found another job three months later, starting on the same day I got my last severance check. Somebody is looking out for me.

By John57 — On Dec 26, 2011

I had worked for a company for 25 years and one day, I no longer had a job with them. This came as quite a shock to me.

This was the only job I had known since high school. Here I was with no college education, middle age, and wondering how I was going to make it.

I was given a defined benefit plan termination package. This seemed menial compared to what I thought it should be after all those years of service.

After floundering around for a few weeks, I finally decided to go back to school and finish my education. It ended up being the best thing I could have done.

Now I have a college degree and I job that I really enjoy. If this job doesn't work out, it is nice to know that I have an education that goes with my years of experience.

By Mykol — On Dec 25, 2011

In my case, I was given the option of leaving my job with an early defined benefit retirement plan.

I was not the only person given this option, and for some it was a much easier decision than for others.

Many factors came into play, depending on how old you were, and if you had a working spouse where you could get on their health insurance plan or not.

It was a pretty easy decision for me, as I was close to retiring, and my husband still had a good job with insurance benefits.

For employees who were younger and had families that depended on them for benefits, it was a much tougher decision to make.

By LisaLou — On Dec 24, 2011

When my company was downsizing, I figured it would only be a matter of time before I lost my job.

It didn't come as much of a surprise when I was let go and given a termination of benefits letter. This letter spelled out the benefits I would receive and the conditions attached to them.

It was nice to receive a severance package and know that I still had insurance benefits for a few months while I looked for another job.

Even though it takes awhile to get over the sting of losing your job, I was thankful for the termination benefits I did receive. It was a nice cushion to have as I began my job search.

It took longer than I thought it would to find a comparable job. I really don't know how I would have made it if I hadn't received these benefits.

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