Severance pay

Severance pay is compensation an employee receives when their employment ends involuntarily, typically due to layoffs or redundancy. It serves as financial support, helping an affected employee transition until they find new employment.

Employers often calculate severance pay based on several factors:

• Employee tenure: the number of years an employee worked for the company.
• Salary level: commonly a certain amount of weeks' pay per year worked.
• Employment agreement: certain companies specify severance conditions upfront through employment agreements or contracts.

Severance isn't federally mandated by law in the United States; however, some state legislations or company policies may require it. Employers may also offer severance voluntarily, especially when aiming to reduce potential legal action or negative publicity.

Aside from monetary benefits, it can include other supportive resources, such as continued healthcare coverage, career counseling, or outplacement assistance, depending on the company's severance policy.

An employee might be required to sign a waiver relinquishing their right to future legal claims against the employer as a condition for accepting severance pay.

Understanding severance pay and company policies beforehand helps both the employer and employee navigate the difficult process of job termination with clarity and fairness.