Terminating an employee can be stressful for everyone involved. As an employer, it’s a necessary part of business.
If you’re considering terminating an employee, it’s imperative that you document the event with a written record. That’s where a termination letter comes in. A termination letter confirms the individual’s end of employment and outlines the necessary information the person needs to know to move forward.
This will serve as an official record of the layoff or firing in case the employee files for unemployment, applies for another position within the company, lists you as a reference (surprisingly, it happens), or files a lawsuit against the company for wrongful termination.
Before sending a termination letter, employers should meet with the employee face-to-face. Discussing the termination will make the process easier, and the employee won’t feel blindsided about being let go.
What to include in a termination letter
Basic employee information
Include the employee’s information, including full name, employee ID, position title, company name, name of person handling the termination, the date of termination letter and termination date (if it is different from the date of the letter).
Reason for employee termination
There are a number of reasons why you could be letting an employee go — the company could be going through a staff reduction, the employee is consistently late to work, etc.
Stating the reason for the termination will serve as a record and help the employee know why they are being laid off or fired. If the employee is being terminated for cause, be sure to include if the employee was given warnings, the dates of the warnings and if they were written or verbal.
Return of company property
If the employee has company property in their possession — like a cell phone or building pass — make a note of it and ask for its return.
Vacation time, sick time
If the employee has accrued any vacation, sick days, or PTO, include whether they will be paid out for unused time. Depending on what state your business is in, you may be required to pay out unused vacation time. Federal law does not require employers to pay out unused sick time.
Final paycheck and severance
In the termination letter, include information about the final paycheck: when it will be issued, if it will be mailed to the address or picked up at the office. Consider including the final paycheck at the time the employee signs the termination letter, that way you can officially end employment.
It is up to the company’s discretion if they will include severance pay — this is usually outlined in the employer’s handbook. Under federal law, employers are not required to include severance pay, but many companies opt to do so. The amount is usually based on how long the employee has worked for the company.
Health, 401(k) and other benefits
If the employer provides benefits, like health insurance or retirement savings, include information on how this will be handled. Important information to include is when the health benefits run out, and information on how to continue coverage through the group plan.
If the employer has a 401(k) or another type of retirement plan, including information on where they can access their retirement savings.
Am I required to write a termination letter?
There’s isn’t a federal law that mandates employers must provide a termination letter, but some states do require a written notice of separation.
Those states are: Arizona, California, Connecticut, Georgia, Illinois, Louisiana, Massachusetts, Michigan, New Jersey, New York, and Tennessee.
Am I required to give a reason for the termination?
Again, there is not a federal law that compels businesses to provide a reason for the termination, but if you’re terminating with cause, it is wise to document the reasons for the termination and the supportive reasoning. This will help guard your company against a lawsuit.
What not to include in a termination letter
Sarcasm, inside jokes, informal language — you may have had shared a laugh in the office, but you should not make light of a situation where an individual is losing a job. Keep the language professional and to the point.
Below, you’ll find a basic termination letter you can keep on file.
Sample termination letter
Sample termination letter (text)
[Date letter is written]
This letter is to confirm our discussion that your employment with [Company Name] will end as of [Termination Date].
As discussed, the reason behind the termination is because of [List reasons of termination].
You will receive [List compensation the individual will receive, including final pay and severance].
Payment for unused vacation time will be included in your final paycheck, which you will receive [Include information on when and how they will receive their paycheck].
You are required to return [List company property employee has in its possessions].
Your health care benefits will [List how long health care benefits will last]. You will receive a separate letter with information on The Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation of group coverage.
Your 401(k) plan is administered by [Name of fund administrator]. You will need to update the company with a current mailing address so we can send a W-2 form and follow-up COBRA and 401(k) information.
Also, keep in mind that you have signed a confidentiality agreement. Please review the attached copy.
Please let us know if we can assist you during this transition.
[Employer name and signature]