Back to Encyclopedia

Severance Pay

Definition: Money in addition to wages and any other money that employers owe employees when their employment ends, such as through a layoff or firing. Severance pay is a form of what's generally called "separation," "termination" or "final pay."

Severance pay can be a good investment. That may sound untrue, given that it involves paying money to someone who doesn't work for you anymore. But when you offer severance benefits, it lets all your employees know that, even if the worst happens, you have some level of regard for them and will not leave them high and dry. It's also a good advertisement for anyone who may be thinking of joining your company.

Severance pay doesn't have to come in dollar denominations. Sometimes, other benefits may be worth more to a former employee. You may be able to provide paid outplacement counseling or training for a new skill. In some cases, simply allowing the employee to keep a desk at your company for a month or two while he or she searches for a new job may be worth more than a sizable sum of money. Be creative in offering and negotiating severance pay.

Browse By

Popular Articles