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IRS Penalty Relief for Severance Pay Expires on December 31

The IRS has given employers until December 31, 2012 to correct a problem frequently found in severance agreements and other similar arrangements. If not corrected by that date, it could be much more expensive to correct the problem. In this article, we discuss the problem and how to fix it.

Pros and Cons of Severance Agreements

Employers who pay out severance to their employees run certain risks that need to be considered beforehand. Some employers have learned the hard way that severance agreements aren't always the best course of action. Last year, the University of Oregon received bad press when it was discovered that former head coach Mike Bellotti received a substantial payout upon his departure.

Be Careful With Severance Plans.

The current financial crisis and economic downturn have caused many employers to implement lay-offs and reductions in force. In an effort to reduce the harsh economic impact of a sudden job loss, and in an effort to mitigate the negative employee relations issues that can result from downsizing, many employers offer affected employees separation pay or severance. Many of these arrangements are not formalized and simply consist of continuation of payroll for a specified period of time following termination of employment.

The Changing State of the Law regarding Releases (pdf).

Recent cases from different circuits illustrate the uncertain state of the law.
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