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What Is Severance Pay?

Severance pay might be issued to employees in the event of a mass layoff.
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  • Written By: B. Miller
  • Edited By: Andrew Jones
  • Last Modified Date: 05 November 2014
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Severance pay is pay given to an employee when he or she leaves the company, typically as a result of mass layoffs. It is not given if the employee quits the company, but may be given if he or she volunteers to leave, possibly as an incentive for early retirement. Severance pay is virtually never given to an employee who is fired from the company for any negative reason.

Severance pay is considered to be additional, supplementary pay to an employee's regular wages or final paycheck. In some states, it must be classified as such in order for the employee to be eligible for unemployment benefits. Otherwise, the severance pay can delay the time period in which one is eligible for unemployment benefits, which is unfortunate.

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Businesses are certainly not required to offer severance pay to their employees, and some use it as a sort of negotiation tactic in order to get an employee to compromise and sign a waiver releasing all of his or her legal rights. This is up to the employee whether or not he or she chooses to take the pay in exchange for signing the waiver. Some employees attempt to negotiate with the company, or hire a lawyer in order to do the negotiation for them. Keep in mind that while negotiating may lead to a better deal, it may also lead to no deal at all, which means no severance pay; be prepared for that if choosing to negotiate and not accepting the first offer.

Severance pay does not always come in the form of monetary compensation. Sometimes, a company will offer a severance package, which may include extension of benefits such as health insurance or life insurance, for example, or even career counseling. These benefits might extend for six months to a year after the employee leaves the company, depending on the specifics of the package. Some companies might even offer employees some time to come into the office to use resources and search for a new job, though this is relatively rare.

In many cases, severance pay is mutually beneficial for the business and the employee. It is obviously helpful to the employee while he or she is transitioning to a new job, and it portrays the company in a favorable light. Existing employees as well as potential employees can recognize that the business will help them out if they can no longer employ them, and shows that the company holds its employees in higher regard.

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bluedolphin
Post 5

@fBoyle-- It depends. If the company is laying off a lot of people at once, everyone will receive the same severance pay. My company's severance pay was one week pay for every year that an employee has worked for that company. I've been there for three years, so I got three weeks pay. It's definitely not much considering the fact that it will take me a while to find a new job. But it's better than nothing.

If you are offered severance pay because a business has gone bankrupt and is shutting down, please accept it. They won't offer it to you again, so you'll be jobless and without the severance pay. Take it and look for a new job.

fify
Post 4

@Pippinwhite-- I agree with you. My friend got laid off after seven years and he was not given a severance pay. He couldn't afford an attorney and didn't do anything about it but had financial trouble as he couldn't find a job immediately.

Because laws and procedures are very relaxed about this, I think that many companies do take advantage of it. Since they won't be needing that employee in the future, they don't really care if the employee receives his severance pay or not. And unfortunately, not everyone has the means or the interest to fight with the company about it.

fBoyle
Post 3

Can anyone tell me what the average severance pay is for an employee that's laid off? I realize that it depends on the company and the job. But how do people know whether the severance pay that's offered is a good deal or not?

Rotergirl
Post 2

@Pippinwhite -- I'll tell you what should be federally mandated: vacation pay! A friend was laid off from our company, very suddenly, and as she was looking at the severance package, she saw that the company was not going to pay her for her earned vacation. She asked about it and the answer was something like, "Well, we don't pay for unused vacation, so we will not be doing that." She had her attorney give them a call, and lo and behold -- the vacation pay appeared.

Then they had the gall to call her back about six weeks later and ask her to come back for a while until the transition was completed. She told them where to stuff it and I can't blame her.

Pippinwhite
Post 1

Severance pay should be federally mandated, in my opinion. Otherwise, it's too easy for companies to lay off good, long-time employees with hardly a fare-thee-well.

For good employees, a nice severance package is what the company owes them, in my opinion. Maybe the employee could have found a better job somewhere else, but stayed out of loyalty. Sure, they received a paycheck for the work they did, but severance pay indicates appreciation for service and loyalty. It also may make it easier for the employee to make it financially until they find another job.

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