Monday - Friday 9AM - 5PM

Severance Pay: Requirements and Different Types

Posted on: December 25th, 2015 by

Severance pay is a benefit that some employers provide to their employees when they are fired or laid off. While there are only two situations that severance pay is required, many employers will offer severance packages to their employees for varying reasons.

When severance pay is required

  1. A handful of states require employers to pay severance to employees when the company is closing a facility or laying off a large number of employees.
  2. If the employer led the employee to believe that a severance package would be paid upon termination. This is evidenced by:
    1. A written contract stating severance would be paid
    2. Employee handbooks or personnel policies stating severance would be paid
    3. A history of other employees in the same position being paid severance
    4. An oral promise to the employee that severance would be paid

When severance pay is not required

Why would an employer provide severance pay to an employee when it isn’t required? Many times it is a sound business decision to do so. Providing severance to long term employees who are fired for reasons other than serious misconduct can make the employee feel better about the termination and less likely to sue the company.

An important thing to consider when providing severance however, is to be consistent. Not having a system in place to be fair about the payment of severance can open the company up for discrimination suits.

Types of severance

Severance pay isn’t always in the form of monetary gain. Consider these types of severance pay:

If you have questions about severance pay, Goldman & Ehrlich has answers for workers and employers. Call us at 312.332.6733 today or contact our Chicago office online