Severance Pay

What Is Severance Pay? Severance pay is compensation provided to an employee when their employment is terminated, usually through layoff, position elimination, or mutual agreement. While federal law does not generally require employers to offer severance, it is a common practice for managing workforce reductions and mitigating legal risk. Severance is typically offered in exchange for the employee signing a separation agreement and release of claims. ## Common Severance Package Components - Lump sum or continued salary payments (often based on length of service) - Continuation of health insurance benefits (COBRA subsidy) - Outplacement services and career counseling - Accelerated vesting of stock options or equity - Payment for unused vacation or PTO - Positive reference agreement ## Legal Considerations Severance agreements typically include a general release of all legal claims, non-disparagement provisions, confidentiality requirements, and possibly non-compete or non-solicitation covenants. Under the Older Workers Benefit Protection Act (OWBPA), employees over 40 must be given at least 21 days to review the agreement and 7 days to revoke it. Employers conducting group layoffs must comply with additional OWBPA requirements and the WARN Act, which requires 60 days' notice for mass layoffs.