Who is Entitled to the Severance Pay? 7 Things You Need To Know About Severance Packages


Deciphering Severance Pay: Things you Ought to Know

1. Severance pay

Severance pay

When an employer offers an employee compensation for being laid off, job elimination, or when the employee leaves the company on mutual agreement, among other reasons not tied to work performance, that is what is referred as severance pay. It may include severance packages that offer additional benefits such as outplacement assistance and health insurance.

2. Which Businesses Offer Severance Pay

Business severance

Not all companies provide severance pay, but it depends on details of employment contracts which varies from one case to another. It is a positive, motivating factor for employees which creates positivity in public relations. For example, in 2016, Four Seasons offered its displaced employees a total sum of $500,000 regardless of how long they had been with the company, a move that did not excite many.

3. How much severance pay should an employee receive


Since most employees are hired on their own will, companies are not contractually entitled to paying them severance fee if they are terminated or laid off. Most companies depend on the length of the period a worker has been with them while others offer a flat rate for all workers. The cause of termination can affect the amount of severance pay. Severance pay also includes unreimbursed business expenses, unused vacation time and sick days.

4. Who gets severance pay?


Employees who have worked for a company are entitled to severance pay if their contracts details dictate that. However, it is not guaranteed you will get it in case of layoffs if your company policies do not dictate so.

It is, however, important to note that Workers Adjustment and Training Notification Act (WARN) gives employee protection for layoff. Companies with over 100 employees and planning layoffs are required by the law to give their employees a 60-day notice failure to which they can sue for severance pay. The following link has more on severance pay, https://www.themuse.com/advice/a-newly-unemployed-persons-guide-to-severance-pay

5. Legal implications

There are no laws sanctioning businesses to offer severance pay unless the contractual terms dictated an employee to get such payments when being dismissed. The Fair Labor Standards Act (FLSA) requires that employers should pay an employee who has been dismissed through his last day, including accrued vacation time payments.

6. Unemployment benefits and severance pay

If an employee is paid a lump sum severance fee, they can apply for unemployment insurance since they will no longer be employed. But some companies offer severance over several months, and hence an employee stays on the company payroll thus cannot apply for unemployment. If an employee has accrued vacation time, as long as he uses it, he remains on the payroll.

Another scenario is where a company offers severance packages which require employees to sign that they have voluntarily resigned. This means that such employees cannot claim unemployment insurance like those whose jobs were cut off involuntarily.


Severance pay is considered income, and hence it is taxable and depends on the amount a person receives.

7. Severance packages

These are bundles of benefits employers offer for laying off employees from their company after a severance agreement is signed. They are negotiable and include benefits such as

• Disability insurance

• Life insurance

• Outplacement assistance for helping employees get new jobs

• Use of company property such as a vehicle, personal digital assistants (PDA), cell phone or laptop.

More about severance pay can be accessed on https://www.investopedia.com/terms/s/severence-package.asp

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Ray M

Ray is a professional blogger and writes for dozens of reputed websites. He specializes in technical and rom-com writings.

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