Why would anything ever be grossed up? Because the purpose of the payment is to give the recipient a particular amount of money, usually related to specific costs, not some amount less taxes.
The costs of sustaining a job search after being fired are a bit different than the costs of living while you have a reliable income stream. The grossing-up part is meant to reflect a nominal amount of money to cover those kinds of costs, not just a virtual continuation of the salary-less-taxes you'd been living on while employed.
In my experience, severance and sign on bonuses are often grossed up, as are payments made for relocation expenses.
But there's no reason to be hung up on that part. It's perfectly fine to just offer a regular severance benefit without grossing it up.
If I give an employee a $100 Amex gift card as a spot bonus, I do gross that up.
If I pay relocation expenses, I require receipts (at which point, it's non-taxable for most situations, so doesn't need grossing up). It's not that I disbelieve the new hire, but rather that I have to make it accountable in order to make it non-taxable.
If I pay cash comp (whether as a signing bonus, periodic bonus, commission, in contemplation of on-going employment, or as part of a termination agreement), they're wages in my book and I've never seen them grossed up (unless more of the character of the gift card or Christmas ham variety).
> If I pay relocation expenses, I require receipts
This might be a deal breaker for me if I was interviewing with someone. It's not that I care about the accountability part, it's more that a ton of relocation costs are unforeseen incidentals, or are private expenses (like first month's rent ... it's not your business what I choose to pay in rent), that should be covered by just paying cash to the new hire. Making them track down receipts for all of it might work out to be more costly, in terms of time lost, than just bearing the taxes, and certainly might involve requiring knowledge of expenses the employee may rightfully prefer to keep private.
Usually, I expect that the company will handle almost all aspects of relocation on their own (e.g. buying plane tickets and hotel rental for housing visit, calling up and hiring the moving company to pack and ship belongings). The part that would be paid as cash would be the cost of rental fees, deposit, and first month's rent, as well as some small amount for incidentals, which should be grossed up.
On the other stuff I guess we just disagree. I don't view sign-on bonus or severance pay as wage pay, even if they are pegged to wage level. For the other stuff, I agree, it's just part of regular income and the employee should bear the tax. But for sign on bonuses and severance, I think it's fair for the employer to bear the tax in light of the purposes of those payments.
Sign on bonuses are very different in this discussion though, since not everyone provides them and the amounts can vary a lot and for low amounts grossing up can matter significantly, while for larger amounts, employees are usually happy to bear the tax cost themselves. I'm not so worried about what an employer's policy is for these.
It would matter to me to negotiate a specific value paid for severance, though, rather than "6 months' salary" which will then have taxes taken out. If an employer was put off by this, it could be a problem, depending on all the other aspects of the job. One way to avoid this is that if secretly what I want is 6 months severance grossed up, then I'll try to negotiate 9 months severance, without mentioning the grossing up part. It's less off-putting to the counterparty, even if it would be nicer if I could just speak plainly.
I'm just speaking from my experience as a candidate in previous roles. I'm sure everyone has different experiences.
It wouldn't end up as a deal-breaker. In the discussions leading up to it, you'd object to providing receipts, indicate that you're trying to cover other types of costs, and I'd respond with, "OK, we'll call it a signing bonus," and then negotiate the exact [pre-tax] amount.
I (and I assume most hiring managers) have broad discretion on the amount of a signing bonus. For an engineer I want, I will never care about the difference between a $5K and a $10K signing bonus (or if we're talking about bonus in lieu of relo, the difference between $15K and $25K). It's a one-time expense to me, comes out of a different budget, and yet candidates seem to really value them seemingly out of proportion to the economic benefit.
It can vary a lot. I think $10k is a generous signing bonus if it comes in addition to relocation. $15k is around the smallest lump sum relocation I would consider reasonable though.
Some firms offer > $30k signing bonuses (some more than double that) independently of relocation. It's rare, but not exceedingly rare.
