What is severance pay?

Severance pay is a specified amount of money that an employer pays an employee who is no longer in their current position. Reasons for severance pay include layoffs, elimination of a position or a mutual agreement to part ways between the employee and employer.

Severance pay is not a legal requirement of the employer unless noted in a contract that exists between the employer and employee. There is no regulation of severance pay, through the Fair Labor Standards Act. It is completely up to the employer or company policy. It is viewed often as a courtesy to the employee due to their employment no longer existing.