Severance Pay

Severance pay means the sum of money paid to workers in case of it being terminated from job, mostly due to reasons that are not under the control of the worker such as company layoffs, restructuring, or redundancy. The aim of severance pay is to aid the employees in their job hunting and diminishing the financial consequences of sudden job loss.

Example of Severance Pay

A company is going through a period of restructuring with the purpose of achieving efficiency in operations and reducing the costs. Hence, a number of employees will be laid off, and their positions will be terminated.

Conforming to employment laws and company regulations, the company provides severance packages to the affected employees as their financial support during their transition period. Gratuity packages may include a lump sum payment based on the employee's anniversary of service, continuation of health insurance for a specified period, outplacement services to help with job search and resume writing, and counseling or career coaching to provide support for emotional well-being.

The marketing manager with ten years of service is one of the employees who got benefited. He gets the lump sum payment equivalent to three months’ salary, continuation of health insurance coverage for six months and access to the outplacement services to help with job search and career transition.

The company’s severance pay enables the employee on the way out to handle his/her living expenses including financial obligations while searching for another job. It also enables them by offering plus the necessary guidance and tools to deal with the difficulties of the unemployment and secure new work possibilities.