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Severance pay

Severance pay is a benefit paid by larger employers when an employee agrees to give up his job.

Expanded Definition

The payment is often made based on years of service and sometimes paygrade or rank in the organization. The payment is voluntary, not required. Often an employer agrees to pay severance pay in return for agreeing not to sue for discrimination, wrongful termination, or some other detail.

Ironically, most employees do not received severance payments when they retire at their normal retirement date. Hence, the payment is a common feature of early retirement packages. Increasingly employees ready to retire wait for an incentive package before retiring to maximize their retirement benefits.

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