With many businesses reducing staffing size, more Americans than normal are receiving buyout offers from their employers. If you have been approached about this opportunity — or suspect that you may be so — how should you respond? Should you take the offer? And what should you do if you decide to do so? Here are a few key answers.
What is a Buyout Offer?
A buyout offer is a compensation package offered by an employer to an employee to convince the employee to voluntarily leave the company’s payroll. This usually occurs when the employer is having financial strain that could be reduced if the payroll were less expensive. Rather than suffer mandatory layoffs or budget cuts, the company may try to entice certain employees to leave of their own accord.
Buyout offers are designed to be tempting but not cost-prohibitive to the employer. They usually include things like severance pay, payment of key benefits for a specified period, retention of some company assets (such as a company vehicle), or lump sum contributions to stock plans.
When Should You Take a Buyout?
The decision to accept such an offer is as unique as each individual employee. In many situations, buyouts are seen as preludes to layoffs and may represent your best bet for good compensation before this happens. If enough workers don’t take buyouts, the company may have to resort to layoffs and terminations — which are unlikely to come with the same level of compensation.
They may also help employees who are on the fence about their employer to take the plunge by leaving. If you’re considering retirement, are unhappy with your current position, or dislike changes being made within the company, this is a good way to get out with an intact reputation and money to help fund your future endeavors.
When Should You Not Take a Buyout?
Keep in mind that you are not obligated to take the offer if it doesn’t work for your circumstances. If you’re happy where you are, you may not want to leave and then hit the job market again. In this case, you may opt to refuse the offer and hope that enough other employees take it up to forestall layoffs.
Buyouts are often offered to workers closer to retirement. This can be a boost to your retirement plans and funding. But if you are close to receiving a retirement package that would be more beneficial in the long term, you may want to hold out and see if layoffs are avoided. If the compensation package would not bridge your needs before retirement, you could end up in a financial bind.
How Should You Respond to an Offer?
If presented with a buyout opportunity, don’t react immediately no matter how tempting the amount. Ask your employer how long you have to decide, and then consult with professionals who can help you decide how to proceed. You should meet with an accountant to go over how the compensation would or would not cover your needs after you leave the company.
You should also consult with an employment attorney about the agreement. Buyout offers come with a legally-binding contract, which you need to go over in detail before signing. A buyout might, for example, include a non-compete agreement preventing you from working for another employer in the industry or seeking out consulting income on your own. This could seriously impact your ability to earn future income.
While it may seem like a simple offer, every buyout opportunity should be evaluated both on financial levels as well as legal ones. If you have an offer or foresee one coming, meet with the legal team at Siben & Siben LLP today. We will help you navigate this unique employment situation and find the best solution for you and your family. Call today to make an appointment.