Is there a legal requirement for severance pay?

On Behalf of | Jun 8, 2023 | Severance Agreements

The government at the state and federal levels does not dictate severance agreement details unless the government is the employer. For all other situations, the details of your severance package are completely between you and your employer.

Some people mistakenly think that the Fair Labor Standards Act covers severance pay, but it does not. Your employer has no legal obligation to pay you when you leave the company unless there was a contract in place. Also, note that you have every right to negotiate these points, including pay.

How severance works

Severance packages are something employers often offer, but they are not mandatory. An employer can let you go and only owe you money you legally earned. So, you may not even get the extension of a severance offer.

If you do get an offer, you have the right to accept or refuse it. You can counter the offer and negotiate. It all depends on your standing with the company and the terms of your separation. If you are leaving on good terms and have been a valuable employee, then your employer is more likely to offer you severance pay at agreeable terms.

Typical pay rate

Severance pay rates usually match your time with the company and your average pay. You may receive it as a lump sum payment, but some employers will pay it the same as your normal wages. It is common to get about four weeks of normal pay for each year you have been with the company. But note that since there are no laws regarding what your employer has to pay, this may vary widely.

Severance pay is like a thank you from your employer for the work you have done. Do not take it for granted because there is no legal obligation to pay you if you do not have a contract mandating it.