A severance package—often referred to as just “severance”—is usually a lump sum payment plus any benefits an employee receives when they leave an organization. 

Severance can include 1-2 weeks’ worth of wages for each year of service, COBRA coverage, and outplacement employee services, such as career counseling, resume-writing help, or letters of recommendation. 

Typically, a worker’s final paycheck is not considered part of a severance package.

In some cases, employers pay severance to workers who are laid off in order to help them search for their next opportunity. In other cases, however, employers offer severance pay to honor an employment agreement.

Generally, the Fair Labor Standards Act does not require employers to offer severance pay when an employee leaves their organization. However, if a severance package was included in an employment or collective bargaining agreement, that contract is legally enforceable.

There are also a few other circumstances where severance pay may be legally binding. For example, some states require severance pay for factory workers who are laid off when a plant closes or in cases when an employer lays off a significant percentage of its workforce. Again, you should consult your state laws and a labor attorney.

Federally, in specific situations, a severance package may be offered in lieu of the 60-day notice of a factory closing or mass layoffs required by the Worker Adjustment and Retraining Notification Act (WARN). 

Related Terms: Employee Leave