A termination letter is more than a simple legal formality. It is also an important way to let workers know about why they’re leaving the company and what they can expect to happen next.
Like many important HR practices, termination letters are more popular at fast-growth companies. Whether you’re interested in revenue growth or legal compliance, there are many important reasons why you should be giving all of your employees termination letters when they are dismissed from employment.
Do You Provide Exiting Employees with a Termination Letter?
At Asure, we recently finished our 2024 HR Benchmark Report. We surveyed more than 1,000 small businesses about their HR practices. We asked 40 questions about eight topics. Then, we inquired about what the company’s growth was like during the previous year.
When we asked organizations about whether they gave exiting employees a termination letter, we found that the fast-growth and zero-growth companies offered significantly different answers. In fact, there was a 40-point spread between the answers we received for small businesses with less than 25 employees.
42% of zero-growth firms said they provided existing employees with termination letters.
82% of fast-growth firms said they provided existing employees with termination letters.
In a recent Mission to Grow podcast on, “Post Employment – HR’s Role After the Job Ends: Managing Post-Employment Effectively,” Mary Simmons, the vice president of HR compliance, learning, and development, delved into why termination letters seem to lead to higher revenue.
According to Simmons, “I think that doing things right is always going to correlate to revenue growth. I think that termination letter speaks to the employment brand that you spoke about, having that employee be an ambassador of an organization,”
What Is a Letter of Termination?
As the name suggests, a termination letter is given when you dismiss someone from employment. It helps you document the reason why they were dismissed. For instance, the letter of termination should clearly detail one of the following reasons.
- With Cause: To be terminated with cause, an employee must have committed a workplace infraction or be unable to meet performance standards. For example, the employee may be chronically late.
- Without Cause: When you dismiss a worker without cause, it’s typically due to market factors. For example, you may need to downsize your workforce. Similarly, the employee’s department or job title could no longer be needed.
- Contract Ended: If the employee is at the end of their contract, then you can include this in the termination letter. This reason can be used whether the employee would actually be able to renew the contract or not.
Termination letters aren’t required in every state. However, they are a good idea for all workplaces to adopt, even when they aren’t legally required. If you live in the following states, you will need to provide employees with some form of separation notice.
- California
- Colorado
- Connecticut
- Georgia
- Massachusetts
- New York
- Tennessee
- Washington
It’s important to remember that this isn’t an exhaustive list. Additionally, many states have additional termination requirements. For example, Maryland doesn’t require a termination letter, but separated employees must be given a letter notifying them about their unemployment eligibility. Similarly, Louisiana doesn’t require you to give your workers a termination notice, but you are required to file one online within three days.
What Should Be in a Termination Letter?
When you write a termination letter, there are a few important things you should include.
- Employee’s name and position
- Employee ID number
- Reason for termination
- Termination date
- Contact information for HR
- Benefits remaining and how long they last
- Date of the final paycheck
- Any business property that needs to be returned
- Reminders about confidentiality and non-compete agreements
- COBRA notices about ongoing benefits
- Description of events leading to termination, such as efforts to correct the behavior
Why Do You Need to Give Employees Termination Letters?
Termination letters are important because they help to document the termination and protect your company legally. Your state may also legally require them.
As Simmons discussed, providing termination letters and consistent policies for your workers is a part of your company’s brand. “We always talk about the first impression,” Simmons says. “The last impression that an employee has of your organization is equally as important because it’s their last impression of the organization.”
Later on, former employees may reapply or recommend other people apply at your business. They may even refer clients your way or leave a review on employment sites. Because of this, it’s important to make a smooth, standardized process so that they will have a good final impression of your business.
Ensure Proper Documentation
One of the most important reasons why you should give termination letters is for documentation. You don’t want there to be a dispute about why the employee was terminated or when it happened.
Protect Yourself Legally
Your termination letter is a written document and serves as legal evidence about the termination. If there is ever a dispute about what happened, this letter is proof that you strove to be fair and aboveboard in your employment practices.
Inform About Final Arrangements and Benefits
While termination letters may take more effort to create upfront, they will save you time and money in the long run. If you don’t tell workers when they’ll get their final check or which benefits they’re eligible for, you’ll have to field calls from them and research each question. By providing the employee with a clear, concise termination letter, you can give them all of the information they’ll eventually inquire about.
Fulfill State Requirements
Each state is different, so you should look up your state’s requirements for termination letters. For example, Arizona requires employers to give workers a termination letter at the same time as their final check. It must state the date of the termination and the reasons for the termination.
Meanwhile, California requires a termination letter called the Notice to Employee Regarding Change in Employment Relationship. They also require employers to provide a Cal-COBRA notice, a COBRA notice, and a pamphlet about unemployment programs.
These requirements vary from state to state, so it’s important to determine which laws apply in your area. Even when states don’t require termination letters, they often expect workplaces to notify their employees about unemployment eligibility.
It can be challenging to determine what the requirements are for different states. Because it’s impossible to know what you don’t know, it’s a good idea to reach out to professional HR teams, like Asure Software, for more information about the rules in your area.
Track Terminations for Future Reference
Written records aren’t solely useful for legal reasons. They are also effective tools for your organization. If your HR department is called to confirm employment, they’ll need to have the date of termination. Likewise, your organization may want to remember why an employee was let go if that worker ever reapplies at your business.
Provide Consistency
When it comes to HR, one of the most important things you can do is be consistent. Whether you want to avoid discrimination lawsuits or the appearance of favoritism, consistency ensures that every employee feels like they are treated fairly. A termination letter is just another way to document your HR process and ensure your company lives up to its branding.
Protect Your Organization Through Termination Letters
Consistent, compliant HR practices aren’t just good business. They’re your company’s line of defense against legal issues. In states that require them, they are also a compliance requirement. If you’re interested in learning more about post-employment HR practices, we can help. To learn more about termination letters, reach out to Asure’s team of small business HR professionals today.