Severance Pay

Posted in Human Resources Terms, Total Reads: 973

Definition: Severance Pay

Severance pay is the compensation paid to full-time or part-time employees who otherwise meet conditions of eligibility are involuntarily separated from service because of retrenchment or through a mutual agreement between the employee and employer except in case of dismissal by misconduct. The compensation is generally paid in the form of monetary benefits on a case-by-case basis typically as dictated by employee contract at the time of hiring.


In India thought there is no law specifically to severance pay but two other laws namely Payment of Gratuity Act, 1972 and Industrial Dispute Act, 1947 which compels employer to pay a gratuity compensation when the employee with a minimum of five years of service is terminated by the the concerned organization and a retrenchment compensation to retrenched employees. A severance agreement is a legal agreement, that specifies the terms of an employment termination, such as a layoff and often specify terms against employee suing employer for unemployment benefits and a wrongful dismissal.


With respect to Human Resources, below are the critical points regarding Severance Pay

• Lay Off -If an employee is laid off after continuous employment of one or more years then he is liable to receive the severance pay. Examples are Separation Assistance, Severance Priority, Restraining.

• Medical Termination -

• Resignation

• Retirement

• Death

• Abandonment of Position


Hence, this concludes the definition of Severance Pay along with its overview.


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