Sometimes, employers may need to lower their operating costs by reducing their number of employees. In these cases, employers may offer long-term employees a buyout, or payment for leaving a company. Employee buyouts may be negotiable, so it can be valuable to review and discuss the terms of the agreement offered to you. In this article, we learn why employers offer buyouts, who benefits from an employee buyout and what the typical terms of this offer include, to help you decide if a buyout is right for you.
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What is an employee buyout?
An employee buyout, also known as voluntary severance, refers to when an employer offers certain employees a package of pay and benefits for the employee to leave their job. The pay and benefits last for a specified amount of time to help employees live comfortably while finding a new job. Employees have the option of refusing a buyout offer or negotiating some terms of the package with their employer.
Why are employee buyouts used?
An employer may offer an employee buyout for as a gesture of kindness to employees when a business needs to lower costs or reduce their workforce. For employers, the cost of the package is often less than the overall cost of keeping an employee on their payroll. Buyouts may also help companies avoid hiring and training delays when combining roles or restructuring a department.
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Who benefits from an employee buyout?
Depending on the situation, both an employer and employee can benefit from a buyout. Employers can reduce costs, maintain good relationships with past employees and improve efficiency for their business when they offer these packages. A buyout may also be beneficial to employees who are close to retirement, wanting to change careers or can easily get a new job in their field. Each situation is unique, and many benefits of a buyout depend on the specific terms of the package.
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Terms of an employee buyout
Each employee buyout experience is unique to the people involved, but most buyouts share a few basic elements. Government regulations determine a few terms of a buyout, but the specifics can differ based on the state in which you’re employed. You can change some terms, however, if your employer agrees to negotiation.
Examine the following negotiable and regulated terms of an employee buyout to learn what you might try to change in your offer:
Negotiable terms of an employee buyout offer
Here are some terms you can usually negotiate in a buyout package:
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Amount of pay: Employers use their budget, current operating costs and your current salary to decide how much money to include in a buyout package.If you need more money than your package offers while you wait for retirement or find a new job, discuss this with your employer.
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Lump-sum or installments: Employers offer buyout payments in a lump-sum or installments over a specified period. Consider the financial implications of each type of payment and negotiate if you prefer one over the other.
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Use of paid time off: Remember to check if your buyout offer includes reimbursement for any paid time off you’ve accrued. Ask your employer if you can use the time off before you leave your job or receive money equal to the amount of time you have saved.
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Non-compete clauses: Some employers include non-compete clauses in their buyout packages. These clauses don’t allow you to work for your employer’s competitors for a specified period. Consider negotiating this clause if you want to find a job in your current field.
Amount of pay: Employers use their budget, current operating costs and your current salary to decide how much money to include in a buyout package.If you need more money than your package offers while you wait for retirement or find a new job, discuss this with your employer.
Amount of pay: Employers use their budget, current operating costs and your current salary to decide how much money to include in a buyout package.If you need more money than your package offers while you wait for retirement or find a new job, discuss this with your employer.
Lump-sum or installments: Employers offer buyout payments in a lump-sum or installments over a specified period. Consider the financial implications of each type of payment and negotiate if you prefer one over the other.
Lump-sum or installments: Employers offer buyout payments in a lump-sum or installments over a specified period. Consider the financial implications of each type of payment and negotiate if you prefer one over the other.
Use of paid time off: Remember to check if your buyout offer includes reimbursement for any paid time off you’ve accrued. Ask your employer if you can use the time off before you leave your job or receive money equal to the amount of time you have saved.
Use of paid time off: Remember to check if your buyout offer includes reimbursement for any paid time off you’ve accrued. Ask your employer if you can use the time off before you leave your job or receive money equal to the amount of time you have saved.
Non-compete clauses: Some employers include non-compete clauses in their buyout packages. These clauses don’t allow you to work for your employer’s competitors for a specified period. Consider negotiating this clause if you want to find a job in your current field.
Non-compete clauses: Some employers include non-compete clauses in their buyout packages. These clauses don’t allow you to work for your employer’s competitors for a specified period. Consider negotiating this clause if you want to find a job in your current field.
Regulated terms of an employee buyout offer
Here are some legal or regulated terms in an employee buyout that may not be negotiable:
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Continued health insurance: Federal, state or local regulations may require that employers offer options for healthcare after an employee leaves a job. These benefits are rarely negotiable, though you may usually decline them if you choose. Check regulations to ensure your buyout offer is compliant.
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Unemployment benefits: Unemployment benefits are separate from your buyout agreement, and it’s important to know some states may prohibit you from claiming these benefits if you accept a buyout offer. You can try to negotiate a higher buyout payment if the amount is less than what you would receive through unemployment insurance.
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Liability release: A liability release is a form that guards employers from lawsuits related to wrongful termination. Typically, employees must sign this release to receive the benefits of a buyout package. While not all employers include a liability release in employee buyout offers, they are rarely negotiable when included.
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Retirement plan benefits: Federal regulations protect the retirement benefits of most employees, so check your buyout offer for information regarding any changes to your retirement plan. Review the offer for compliance with regulations and discuss any issues with your employer.
Continued health insurance: Federal, state or local regulations may require that employers offer options for healthcare after an employee leaves a job. These benefits are rarely negotiable, though you may usually decline them if you choose. Check regulations to ensure your buyout offer is compliant.
Continued health insurance: Federal, state or local regulations may require that employers offer options for healthcare after an employee leaves a job. These benefits are rarely negotiable, though you may usually decline them if you choose. Check regulations to ensure your buyout offer is compliant.
Unemployment benefits: Unemployment benefits are separate from your buyout agreement, and it’s important to know some states may prohibit you from claiming these benefits if you accept a buyout offer. You can try to negotiate a higher buyout payment if the amount is less than what you would receive through unemployment insurance.
Unemployment benefits: Unemployment benefits are separate from your buyout agreement, and it’s important to know some states may prohibit you from claiming these benefits if you accept a buyout offer. You can try to negotiate a higher buyout payment if the amount is less than what you would receive through unemployment insurance.
Liability release: A liability release is a form that guards employers from lawsuits related to wrongful termination. Typically, employees must sign this release to receive the benefits of a buyout package. While not all employers include a liability release in employee buyout offers, they are rarely negotiable when included.
Liability release: A liability release is a form that guards employers from lawsuits related to wrongful termination. Typically, employees must sign this release to receive the benefits of a buyout package. While not all employers include a liability release in employee buyout offers, they are rarely negotiable when included.
Retirement plan benefits: Federal regulations protect the retirement benefits of most employees, so check your buyout offer for information regarding any changes to your retirement plan. Review the offer for compliance with regulations and discuss any issues with your employer.
Retirement plan benefits: Federal regulations protect the retirement benefits of most employees, so check your buyout offer for information regarding any changes to your retirement plan. Review the offer for compliance with regulations and discuss any issues with your employer.
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Tips for deciding whether to take an employee buyout
If you’re offered an employee buyout, consider the following tips to help you choose whether to take the offer, renegotiate or opt out:
Read everything twice
It’s important to fully understanding everything in your employee buyout offer before agreeing to it. Read the entire document at least twice to ensure you understand your benefits and limitations. This also helps you check the offer complies with federal, state and local regulations. As you review the document, note areas where you need clarification from your employer. Having a thorough understanding of the offer allows you to make the best choice about accepting it.
Talk to family and friends
Consider asking the opinion of family and friends regarding the benefits and limitations of your employee buyout offer. A network of supportive people can help you list the pros and cons of taking a buyout offer or negotiating for improved terms. It’s especially useful to speak with people who have experienced a buyout before as they understand the process, pros and cons.
Decide if you want a career change
If you’re ready for a change in your career, an employee buyout may excite you. Review any non-compete clauses that would prohibit you from working in your current field and determine whether the payment amount can help you afford any education or training needed to switch fields. You may choose to negotiate the terms to make them more beneficial for your career change.
Determine if the pay will sustain you
When reviewing your employee buyout offer, consider whether the payment amount will cover your necessary costs as you find a new job or wait for retirement benefits to start. Create a budget to determine how much money you need each month to pay for housing, food and other necessities, and use the payment amount to calculate how many months you can sustain yourself before finding a new source of income. If the buyout amount is too low or you can’t sustain yourself for very long, try negotiating the number with your employer.