Severance pay

Severance pay is compensation an employer provides when employment ends — typically in a layoff — often calculated from length of service and sometimes paired with continued benefits or outplacement help. It softens the landing between jobs, and it is frequently exchanged for a signed release of legal claims.

How it works in the United States

Plainly: no federal or state law requires severance pay. It exists only where an employment contract, a union agreement, or a company policy creates it — though once promised, it becomes enforceable, and formal severance plans are governed by ERISA.

• The WARN Act is the near-exception: employers with 100 or more employees must give 60 days' written notice of mass layoffs or plant closings. WARN requires notice, not severance — but an employer that fails to give notice owes up to 60 days of back pay, which works out to severance in practice. Several states have their own "mini-WARN" laws with lower thresholds.
• Releases have rules: severance conditioned on waiving age-discrimination claims must meet specific federal requirements, including time to consider and revoke.
• The final paycheck is separate: earned wages must be paid on the schedule state law sets, regardless of any severance deal — see final paycheck laws.

No general legal entitlement — WARN Act, 29 U.S.C. § 2101 (60-day notice for mass layoffs); ERISA governs formal severance plans; state mini-WARN laws may apply.

Related terms

• Final paycheck laws
• At-will employment
• PTO