Today, we will talk about “severance pay”. Severance pay is like a fund which we get at the time of leaving the company or leaving a position of company or when someone is terminated by a company.

 Every employee wants that when they leave the company, then they should get some funds from the company and if they get that fund, then that fund is called Severance pay.

Who Gives Severance Pay?

The employer gives a severance pay to their employees because this is a technique when the employee is attracted to the top companies. Actually, several pay is not a compulsory fund or not legal obligations, it totally depends on the employer even if they don’t offer it to every employee. 

It is also beneficial for employees because when the employee leaves the company  and they try to search for a new job, then severance pay is like a fund for them. So in simple words, employers benefit from a company side to the employees and make a good reputation or plus point for our company so that employees stay in the company for a long time and so that they don’t have to take new employees.

This situation mainly occurs when employees get eliminated from the company, and when it is necessary to exit all the employees together from the company. At that time, employees get a severance pay benefit.

Severance pay protect employers from legal allegations

Sometimes, employees make false allegations and try to sue the company without any reasons and employees try to gain advantage to create insurance against this possibility. So the company earns a goodwill by paying severance pay to the employees. Rather, they provide many more benefits to employees to attract towards the company.

How severance pay is calculated?

According to the work of the employee, its severance pay was calculated like the time an employee worked for the company. Severance pay is given to the employee of one or two weeks of each year. Unuseful leave and sick leave are also counted in severance pay. After the severance pay is received in lump sum then the employees are able to receive unemployment compensation and in case, the severance pay received as overtime then employees are not able to receive unemployment compensation or they give the amount very low.

Is severance pay compulsory?

Not at all, it depends on the company status. If a company wants protection from employees and wants every employee to stay longer in the company and do proper work for them that’s why they apply this technique to attract the employees towards them. Actually, Severance pay acts as a safeguard for a company against lawsuits.

Suppose, the company has a size of 50 employees and when the company terminates the employees, they have to give the first 60 days notice until the company has to pay them.

So overall Severance pay offers to the employees to make a reputation and to always be in competition with other companies.