Severance Pay Definition

Term Definition
Severance pay refers to the payment offered by an employer to an employee upon discharge or dismissal from employment.

Extended Definition
The compensation provided by an employer to an employee upon termination of employment is called severance pay. The termination can occur due to job elimination, layoff or as a mutual agreement between the employer and the employee. A typical severance package amounts to one or two weeks’ of pay for each year served with the company. Executives often get a month’s pay for every year. In case of senior-level executives, severance pay is often included in the employment contract. The package may sometimes include benefits like outplacement assistance and health insurance.

The FLSA (Fair Labor Standards Act) does not require employers to offer severance pay. It is usually based on a mutual agreement between the employer and the employee. For more information on severance pay, please consult the Department of Labor (DOL) website.

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