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What is Severance Pay?

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Definition: Severance pay may be given to employees upon termination of employment. However, companies are not required to provide severance pay.

Severance pay is usually based on length of employment. For example, it could be a week's pay for every year or service or a flat amount based on six weeks pay, or any other amount determined by the employer. When provided, it is given as either a lump sum or paid over a number of weeks.

A severance package may also include health insurance coverage for a certain period of time and other continuation of benefits coverage.

There is no requirement in the Fair Labor Standards Act (FLSA) for severance pay. Severance pay is a matter of agreement between an employer and an employee. The employer has no legal obligation to give severance pay to a departing employee.

Also Known As: severance package

Examples: Caitlyn was paid a week's salary for every year of service as severance pay when her employment was terminated.

Read More: Collecting Unemployment and Severance Pay

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