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What is Severance Pay?

When an employer provides monetary compensation to an employee who is no longer going to be in his or her position, the compensation is called severance pay. A variety of reasons exist for a company to pay this money to an employee who is leaving. The most common reasons why people receive severance pay include layoffs, positions that are eliminated or outsourced, or company closures. The amount of money that one usually receives is between one to two weeks of pay for every year of service to the company. In the cases of many executives the severance can include up to an entire month's pay for every year of service. Of course, this can differ greatly from company to company. Some companies also provide one to two months of extended benefits as well as assistance with the often difficult task of finding another job.