Severance Pay Definition

Payment offered by an employer to an employee upon discharge or dismissal from employment.

Severance Pay 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 worked. In the 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.

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Last Updated By

Rachel Blakely-Gray | May 01, 2023