What to Consider Before Accepting an Employee Buyout

David Peters, financial advisor and CPA, joined Cheddar News to break down exactly how employee buyouts work. HE described the method as a way for companies to cut payroll costs. "One of the things to consider is how long we think we're going to be without a job," he said. "That is going to help us to look at the deal that is being offered and help us decide if that's going to be the right thing for us."

Closing Bell

It is Career Friday here on our news and we share our top tips and advice for job seekers. So today, we're talking about a practice that's coming back into focus for many employers and workers in this cooling jobs market that's employee buyouts. They're essentially monetary offers for being let go. But is it the right option for you? I'm joined by financial advisor and CPA David Peters. David, thanks so much for coming on the show, especially on a Friday and let's dive in because for viewers, I'm sure they're probably wondering when companies might typically offer a buy out as opposed to a layoff. Well, a buyout is a way for companies to cut uh payroll costs. And uh typically they're gonna want to look to do that when they are trying to give their employees uh something that is a little bit better than just a layoff. So, like you said, it's going to be an offer for voluntary termination. Uh Typically they are going to offer a package deal where uh pay is going to continue for a certain length of time, maybe benefits might continue for a certain length of time as well. Uh So I see here on this uh full screen that it can be negotiable. Uh David. So what should viewers know about potentially negotiating a buyout? Well, I think there's a couple of things to keep in mind. Uh The first thing is is that uh we should think about uh what exactly we want in that negotiation. So, uh one of the things to consider is is how long we think that uh we are gonna be without a job. I mean, so we are giving up our current employment. So how long is it going to take us to find something new that is going to help us to look at the deal is being offered and uh really decide if uh that's gonna be the right thing for us. The other thing though to consider as well is that a lot of times when companies are doing this, they are looking to reduce cost and they, and the people cost for most companies is typically their biggest expense. So if we don't take the deal, which we're never compelled to take it, they may lay us off anyway. So, ok, that's a very good point because of course, you want to keep all your options open and add enough financial cushion for yourself. Do these usually happen all at once? David? Can they happen on a rolling basis? What else should our viewers know about when this might happen? So, I mean, I think that, uh, well, it's, it's possible that a company could go through hard times. I mean, basically at any point, um, a lot of times, uh, you know, they, it could happen all at once, uh, where they're looking to do this for, for a bunch of their staff, kind of all at the same time. Or it could be rolling maybe, uh, you know, they're, they're looking at this as a last resort. And so, uh, they're just gonna try to, uh, to, uh, to basically make it so that those employees can move on a little bit easier as opposed to just laying people off outright. And so that's typically the decision that the company is trying to make. Ok, so, um, if you are offered a buy out and you do decide to take it, should you expect that your payout will come in one lump sum or does that happen over time? It's gonna depend on the company and it's gonna depend on the buyout. Uh, it could take either one of those forms, uh, could be a lump sum or it could be a series of payments. One thing to pay attention to that. I think it's important for people to know is what happens uh, as a result of this buyout if I take it once that period is up, if it's a series of periodic payments, uh, what happens to unemployment? Am I able to still qualify for unemployment if I actually take the buy out most of the time, if you voluntarily leave a job, you don't qualify for unemployment. But if you are facing a situation where termination is imminent, then you may still be able to qualify. It varies a little bit from one state to the next. Are there any sort of rules, David? Let's say you turn down or you turn down a buyout, you decide to stay with the company perhaps at a reduced rate or whatever it may be. Is there any sort of time frame as to when a layoff window might happen? Can that come at any time if you decide to stick with it? Don't take the buyout. But then risk, obviously, as you said, the chance of getting laid off, unfortunately, in a lot of states, uh, we have uh a right to work laws which uh basically make it so that uh just like, uh you can leave a job, uh any time that you want, uh your employer can also let you go uh with or without cause. And so, uh it is important to remember that layoffs are always a possibility. It's always a possibility that a company may be looking to, uh, to let people go. So that's important to remember if you are made an offer. All right, financial advisor and CPA David Peters. Uh David, thank you for that helpful insight.