Professional Development

The ins and outs of severance pay

Written by Eric Titner

For most of us, our professional lives are filled with a series of highs and lows that mark the journey along our individual career paths—highs that include praise for good performance, promotions and new work responsibilities, salary increases, and new challenges, as well as lows that include disappointment, frustration, burnout, and getting fired.

If you’ve ever experience getting fired, you’re well aware that it can be one of the most difficult experiences a person can go through in life—on top of the professional setbacks and loss of purpose and identity that can come with losing a job, the financial repercussions can have a severe, profound, and lasting adverse effect.

Getting fired is never something to look forward to, and most of us work hard to avoid it; but the truth is that despite our efforts there are times in our lives when things happen that we can’t prevent or control. If you’re newly unemployed or worried about getting fired, you may be trying to figure out what financial options are available to you to help offset the loss of a regular paycheck, including the possibility of getting severance pay.

What is severance pay?

According to the U.S. Department of Labor, severance pay is a financial benefit that’s often granted to employees upon termination of employment. It’s designed to help ease the often-abrupt transition from gainful employment and a regular paycheck to the loss of guaranteed income that characterizes unemployment. One important thing to note is that severance pay it not a given; it is not a universal right granted to all employees, nor is it protected by the government under the Fair Labor Standards Act (FLSA). Instead, severance pay is typically an agreed upon financial arrangement between an employer and employee, and the amount received is usually based upon such factors as final salary at the time of employment termination and length of employment. In addition, the reason(s) surrounding your job loss may be a significant factor regarding whether or not you’re eligible for severance pay—for example, you’re much more likely to be offered severance pay if you’re laid off due to the financial hardship or restructuring of your employer vs. getting fired for cause.

How do you know if you’re entitled to severance pay?

Although it’s at the discretion of your employer to offer severance to help employees cope with job loss, there are three potential scenarios that may help you quickly determine that you’re entitled:

  • It’s a predetermined and previously agreed upon aspect of your employment contract
  • It’s an established company policy for all employees where you work
  • You’re entitled to severance under the Worker Adjustment and Retraining Notification Act (WARN Act), a U.S. labor law that stipulates that any employer with 100 or more employees must give a minimum of 60 days of notice of a mass layoff, and failure to do so will entitle you to legally protected severance pay

Issues to keep in mind when navigating severance

If your employer has a professional HR person on staff, consider utilizing them to get your questions regarding severance pay answered (HR professionals are trained to handle employee issues with discretion). Also, keep in mind that severance pay is short-term financial guidance—and it’s subject to taxation since it’s considered income—so having additional savings or alternate means of financial support to help you should you get fired would be a wise plan. Furthermore, acceptance of severance usually requires you to accept the full terms of your employer’s termination of your employment agreement; make sure you know precisely what this entails before accepting.

Getting fired is never easy, but having a solid financial plan—which may include severance pay—to help you make ends meet while you’re unemployed can make a difficult time significantly less stressful. Know your rights and know what you’re due, and you’ll be putting yourself at your best possible advantage.

About the author

Eric Titner

Eric is a NYC-based editor and writer, with years of experience in career-focused content development across a wide range of industries.