Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 5, 2020

What is Severance Pay?

Severance pay refers to a payment from a company to an employee who is being discharged. 

How Does Severance Pay Work?

Under certain circumstances, employers compensate an employee who is being discharged with a sum of money called severance pay. The specific amount may be related to the employee's salary and length of time with the company. In most cases, severance pay is paid to an employee who is being laid off due to internal changes within a company.

To illustrate, suppose Bob is one of two internal accountants for company XYZ. Due to restructuring, XYZ now needs only one accountant, and Bob's position is subsequently eliminated. Bob is laid off, as a result, and is given severance pay by XYZ when he leaves.

Why Does Severance Pay Matter?

In many cases, employees are made to leave a given company due to internal changes that eliminate their jobs. Severance pay is a compensatory measure that ensures that laid-off employees are compensated fairly not only for work done since their last pay cycle, but also for covering any expenses that may be incurred through no fault of their own between the time they leave their current job and find another position. 

Ask an Expert about Severance Pay
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Severance Pay.
Be the first to ask a question

If you have a question about Severance Pay, then please ask Paul.

Ask a question

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
 - profile
Ask an Expert about Severance Pay

By submitting this form you agree with our Privacy Policy

Share
close