How Is Severance Pay Determined?

What are the rules about severance packages? Do I have to pay severance when I let someone go?

You don’t have to offer a severance package when you let someone go. Severance pay is granted at the discretion of the employer, but the decision to offer this benefit brings some obligations with it. Severance pay is normally contingent on several things, including but not limited to:

  • Length of service. Severance typically ranges from no pay to one or two weeks of pay for each year of service, with pay capped at a certain number of months.
  • Level in the organization. Executive-level employees normally get anywhere from six months to one year of pay. Management-level employees get anywhere from three to six months. Nonexempt staff might get anywhere from no severance to 12 weeks’ pay.
  • Size of the organization. Larger companies generally offer more formalized severance packages.
  • Private, public, or nonprofit sector. Severance packages vary greatly, depending on the type of organization.
  • Existence of an employment contract. Severance terms are written into many employment contracts.
  • Whether the severance is for cause. In most cases, a termination based on poor performance won’t include a severance package, while layoffs generally include some form of severance.