Severance Pay is a form of monetary compensation paid to an employee by their employer after employment has been terminated or ended. Even though many employers opt to grant severance pay to departing workers, there is no legal requirement to do so. Severance pay is effectively seen as a legal waiver that eliminates the employee's right to sue the employer in connection with the employee’s employment or termination. However, when it is offered, the type and amount of severance pay may vary and depend on the individual employee’s case and the company’s discretion.

Severance pay may be given to an employee for many different reasons. In some cases, it is an incentive, awarded to an employee for their length of service. This incentive is meant to reward the employee for their hard work and dedication over a specific number of years. In other cases, severance pay is given upon down sizing or lay-offs due to a shift in the market or the divestment of a particular business unit. When terminations are due to these types of business decisions, severance pay may be offered as a gesture of goodwill for the termination of employment and any hardship it may cause.

When severance pay is offered, it may come with additional benefits. These can sometimes be extended health insurance, continued unemployment compensation, the payment of accrued vacation or sick days, or assistance with job search, such as career counseling or outplacement services. Some companies also offer bonuses or stock options in order to help the departing employee.

In the end, it is important to note that even though severance pay is not legally required, in most cases generous employers offer it as a form of compensation or to ease any financial burden after termination of employment. It is ultimately up to the employer to decide whether to offer severance pay and to what amount, and the employer should always consult their lawyer if they are considering offering severance pay. When any amount of severance pay is offered, it is recommended that the employer document the offer and the agreement in writing and both parties must sign it in order for the contract to be legally binding.