Allowability of Severance Costs
Q. I have a question regarding the allowability of severance pay. We recently eliminated an indirect position and laid off the employee. We are going to give him two weeks’ pay as severance pay. I am trying to determine if this severance pay is an allowable indirect cost that I can allocate to G&A (the employee charged 100% to G&A), or if it is an unallowable cost.
A. Yes, it should be an allowable indirect cost. An auditor could object if you don’t have a written policy or an “agreement” with employees so make sure you have a written policy describing the company’s severance policy.
