Severance Pay
Started by LuketheNuke · Apr 19, 2023 · 2 replies
- LOriginal post
LuketheNuke
Apr 19, 2023 · 3y ago
My question is on the allowability of severance pay. I see in FAR 31.205-6 Compensation for Personal Services (g) Severance pay (2) Severance pay is allowable only to the extent that, in each case, it is required by -(i)Law, (ii) Employer-employee agreement, (iii)established policy that constitutes in effect, an implied agreement on the contractor's part; or (iv) circumstances of the particular employment.
My question is specifically about the (ii)employer-employee agreement, does one read that to say the 'Agreement' needs to be in place prior to employment, rather than afterwards. Similar to 31.205-6 (f)bonus and incentive compensation, where the FAR says '...before the services are rendered'.
I am inclined to read the severance pay same way, as 'before the services are rendered'. What say you all?
- V
Vern Edwards
Apr 19, 2023 · 3y ago
Severance pay is a complex and sometimes contentious issue. I am not expert in the matter, but I did some research for you and found that there is an extensive literature about it. However, in order to access that literature you need some pricey subscriptions. I suspect that if you had access to such subscriptions you would not have come here for input.
I do not think an agreement must be in place before employment. Indeed, the literature says that an agreement can be implied on the basis of company practice. I think circumstances matter. If this is an important question for you, then you should seek professional advice.
- b
bosgood
Apr 19, 2023 · 3y ago
Chapter 69 – Termination Plans, Early Retirement Incentives, and Severance Payments (dcaa.mil)
I think this linked excerpt from DCAA tracks with Vern's comments about company policy and practice as well as some of the complexities involved.
"Contractors usually have a severance pay policy that pays employees a set number of weeks' pay based upon years of service. However, some contractors may provide additional termination benefits, such as medical care, education, and relocation expenses in order to reduce hardship to employees terminated as the result of a mass work force reduction process. These additional benefits also represent severance pay."
There are also other references regarding what may or may not be reasonable and/or allowable/unallowable.