What is a severance?

Are you losing your job? Is your company offering you a severance or separation package? Wanna know what a severance package is? Here are the main things that you need to know so that you can be prepared.

A severance is a separation package that a company provides to an employee when the employee is let go for reasons not pertaining to performance. These reasons may include layoffs, elimination of a position or a mutual agreement to part ways.

Why do companies offer severance pay?

Severance pay is offered as a courtesy to provide the employee time to find another position without succumbing to financial hardship.

What exactly is a severance? Who can get one? What do I need to know? Here are all the things you need to know about a severance.


How are Severance packages determined for employees?

Sometimes these packages are based on years of service or negotiation of their contract upon hire. Common practice is to give employees a week or two of pay for each year worked. Unused vacation time can also be provided within this package. Not all companies provide severance packages, nor are they required to. Types of severance packages can range from full to partial pay of your paycheck over a period of time. Payment can range from thousands to millions of dollars based on the contract. Typically, these are almost always offered to senior employees and sometimes they are offered to mid-level employees. These separation packages range from company to company. Sometimes these packages may offer extended benefits and / or outplacement assistance. Upon hire, an employee may negotiate these terms within their hiring contract as well.

Can you negotiate a severance package terms?

Prior to signing a severance package agreement, the employee may negotiate the terms, however once negotiation is in progress the employer may deem to remove the offering to the employee. The employer may also provide the notice upfront that the terms are non-negotiable.

What happens when a severance package contract is signed?

When a contract is signed, the employee is conceding to a release of all potential claims against their employer. This safeguards the employer against any lawsuits. This is in exchange for monetary compensation. It is best to have legal council review prior to signing to avoid any issues. Post severance package timeline, unemployment compensation is reduced each week for as long as the severance pay is paid. Another notable is there may be terms in the separation document such as a non-compete clause, intellectual property clauses and confidentiality.

Typically separation packages require the employee to report if they have received any sort of income, at which time the employer can discontinue the payment of the severance package.

What happens if the severance contract is breached?

If the contract is breached by the employer, the employee is short changed their financial compensation. If the contract is breached by the employee, typically this is done through breaching the terms of their non-compete. Employees should reach out to legal council if the contract is breached by their employer as they may be able to sue for breach of contract for financial compensation.

What if I get another job during my severance pay term?

If the employee gets another job during their severance pay term, the employer can terminate severance pay, or even require the employee to pay the portion of severance distributed while the employee was working for another company. This is not something that employee’s want to do, so be sure to alert the previous employer of your new position prior to receiving funding from your new role.

I lost my job, but I am not getting a severance, what are my options?

If you have lost your job and your employer is not providing you with a separation package then you may have the option to apply for unemployment. Whether this is you or you just want to be prepared be sure to check out my article on Types of Termination for more information on your options when you are leaving your place of employment.

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I know how hard it can be when you or a loved one loses their job. It takes real determination to get back on your feet and can sometimes be a real hit to the ego. The emotions that one goes through after losing their job can be a roller coaster and sometimes leave us wondering what to do next. If this is you, check out my article on What to Do in the First 2 Weeks after Losing your Job. If you would like more information on severance packages and how it impacts you as well as any unemployment after the severance package has expired click here.


This post is provided as is. I am a blogger and am writing this post to help inform employees of their options. I am not a lawyer, financial adviser, tax adviser, accountant, insurance broker, or other type of HR professional. This information is not intended, nor should it be used, as a substitute for legal, financial, insurance or HR advice, but for entertainment purposes.


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