Losing a job can put you in a financial rut, and most companies know it will take time to replace your lost income. That's why some offer severance benefits that can help you make ends meet while you look for a new job. Companies offer severance pay for a variety of reasons from recruiting to covering their own tails.
Severance pay can be among the job benefits that help attract and retain employees. If company A offers it and company B does not, company A is more appealing since you know you'll have greater financial security if you get laid off. It also gives you extra incentive to be loyal to your company to earn those benefits.
Parting on Good Terms
When employees and employers part ways, the split is usually not amicable. The person losing the job isn't happy with the company, and the company, in some cases, probably isn't happy losing someone it invested money in for years. The severance deal is a way to reward long-time, loyal workers with a sizable financial package. In turn, it can help the employee feel a little less angry toward the company.
Severance packages can help companies avoid lawsuits from disgruntled former employees. You can only get severance if you sign a release that forfeits your right to pursue legal action at any time. So, if a few months or years go by and you think you were a victim of wrongful termination, the courts will support the former employer if you take choose to take the money.
Severance packages typically include salary continuation payments that give you income for several months. They can also be a one-time lump sum payment. The amount and duration is usually based on your service time. Severance packages can also include continued health insurance benefits, job placement services and job references.