Key Elements of a Labor Program

SEVERANCE

Severance payments are an important source of temporary income for surplus workers and they need to be designed and put in place early in the restructuring process. Because they are potentially costly for governments, it is important to design them well. This section of the module provides guidance on how to design severance plans, how to assess payment levels, and how to avoid some common implementation problems.

A severance package has a number of elements. Each element may be governed by different legislation, regulations, rules, or agreements.

The design of severance packages must begin early in the labor program because it is a critical factor in the success of the program. An early start will provide time to assess all of the options. There is, however, no "cookbook" recipe or formula for determining severance payments.

Severance packages typically include some or all of the following components:

Statutory end-of-service payments, the levels of which are set out in national or state legislation and over which there is no discretion (without legislative change)
Compensation for enterprise-level benefits, which are payments to retrenched workers for benefits to which they are entitled according to the rules for each enterprise or as part of a formal collective bargaining agreement
Ex gratia severance payments over and above statutory minimums, which form part of a voluntary departure agreement with workers.

Key Elements of a Labor Program

SEVERANCE

Tools

Additional Materials

Web Sites

Quick Cost Calculator