Reasons an Employer may want to offer Severance Pay in Employment Termination

Severance pay is simply monetary benefits that an employer may want to offer to a worker who has been laid off. Some of the circumstances that can warrant these types of financial benefits include job elimination, layoffs, and mutual agreement between the employer and employee to part ways.

According to The Sattiraju Law Firm, P.C, severance pay often amounts to 1-2 weeks of pay for every year you (the employee) offered your services to the organization. For middle managers and executives, the pay may even constitute a maximum of a month’s payment for every year of service or what was negotiated in the executive’s contract.

What most people don’t know is that severance pay might amount to hundreds of thousands of dollars mainly when dictated by an employment contract. That implies that middle managers or even senior employees or executives parting ways with a certain organization might be extremely expensive.

In all cases of employment termination or separation, the law requires every employer to offer some benefits in accordance with the COBRA. Note that the regulations set by COBRA offer employees and their loved ones the right to continue various group health benefits offered by a group health plan. You can choose to continue the health coverage or require your employer to pay all the health insurance premiums for entire healthcare coverage.

What should an employer pay?

It is worth mentioning that no specific law requires an organization (employer) to offer severance pay. FLSA (Fair Labor Standards Act) requires that a company pays a worker whose job is terminated their salary or wages through work completion date and for the time the worker in question has accrued. Note that time accrued often include accrued vacation period and not sick days.

Thus, severance pay is up to the goodwill of your employer unless the company is obligated by the employment contract to offer severance pay. Also, the severance policy stated in the company’s worker handbook or elsewhere in writing might force your employer to provide you with payments associated with severance pay.

Given the complex process of calculating unemployment compensation, paying severance in lump sum week in a single paycheck might be in the best interest of the worker. This will reduce the unemployment compensation in the particular week it is paid but allows the worker to collect the full amount. Not that if the severance pay is made weekly, your unemployment compensation will be reduced each week.

Generally, the provision of severance pay to departing or laid off worker is both a legal necessity in this era of lawsuits and kindness on the part of the employer or company. The departing worker will get a pay intended to supplement their unemployment compensation and probably offer a financial cushion for better living as they try to secure another job.

Often, employment is terminated due to circumstance external to one’s work. In such cases, the provision of severance pay is a supportive and positive gesture.