Management Glossary

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severance pay

Compensation that is paid to an employee on his or her departure from the company, over and above any back salary, wages, vacation pay and benefits that are due at the time of his or her departure.

Severance pay is typically (but not necessarily) paid only if the employee's departure is initiated by the company, not by the employee. Of course, companies can always choose to issue severance pay even if they are not legally required to do so. Whether the employee has a legal right to severance pay and if so, how much, depends on the language of the employment contract (if any), the circumstances of the employee's dismissal and the labor laws of the governing jurisdiction.

Contributed by: Managerwise Staff

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