What Is Severance Pay?
Severance pay is compensation an employer provides to an employee whose job ends, typically through layoff or position elimination. In the US, federal law generally does not require severance, so it depends on employer policy, contracts, or negotiation; many other countries require it by law.
How It Is Calculated
A common approach is a number of weeks of pay per year of service, such as one or two weeks per year worked.
Taxes and Agreements
Severance is generally taxable as wages, and it is often offered in exchange for signing a release of claims.
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Last updated: September 29, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.