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Although it is stressful to lose your job, finances are not as tight when your employer pays separation or severance pay. Sometimes the employer pays because it is company policy or it appreciates the dedication of a long-term employee. However, some states require payment to employees under certain circumstances. There is a difference between separation and severance pay and the reasons for receiving either of them.
Federal and State Laws
The U.S. government passed the Fair Labor Standards Act to protect employees in the workplace. Part of FLSA covers payment of wages. It does not require employers to make any type of severance or separation pay when terminating workers. Some states have addressed this issue, such as requiring severance pay when a factory is closing permanently, while others do not make demands on the employer. If you are having a problem, then contact your local employment board or legal aid society for an explanation of laws in your state.
Voluntary or Involuntary Termination
Voluntary termination occurs when you agree to leave the company. For example, your employer moved to another state and offered a job transfer to you. However, you decided that you did not want to leave your current hometown, so you resigned. Involuntary termination may occur through no fault of your own. Your company may be downsizing and you were one of the unfortunate employees selected for layoff. An employee who is involuntarily separated when his boss fires him for cause, such as negligence or poor performance, may still collect a severance package.
Your employer may offer separation pay for a variety of reasons, but they are usually to entice you to leave the company’s employ. For example, a large corporation may offer early retirement packages to long-term employees to reduce their payroll without negative publicity. When a company chooses to offer separation pay, it must pay men and women equally, according to the Find Law website.
Severance pay may be limited to one class of employees, such as management. The employee handbook, or similar documentation, must state who is eligible if the company plans to limit access to this benefit. Some employers offer severance pay to undesirable workers as a way to avoid a lawsuit. The worker may be required to sign an agreement that he will not seek legal action against the company.
- Find Law: Severance Pay Laws
- Small Business Administration: Severance Pay and Final Paycheck
- Department of Labor: How Is Severance Pay Calculated and When Is It Due?
- U.S. Department of Labor. "Severance Pay." Accessed Aug. 16, 2020.
- U.S. Department of Labor. "Wages and the Fair Labor Standards Act." Accessed Aug. 16, 2020.
- NBC News. "While Sears executives get $25 million in bonuses, laid-off workers struggle during Christmastime." Accessed Aug. 16, 2020.
- New York State Department of Labor. "Dismissal or Severance Pay and Your Unemployment Insurance Benefit." Accessed Aug. 16, 2020.
Diane Perez is a writer who contributes to various websites, specializing in gardening and business topics, and creates sales copy for private clients. Perez holds a Bachelor of Science in education from the University of Miami.