Large companies normally offer severance payment to employees terminated without fair cause. However, there is no law in the United States that requires companies to pay severance pay to employees removed from their jobs, unless it relates to the WARN Act, a union contract or an existing employee policy.
Severance pay may be negotiated between an employee and employer, and it generally consists of a payment that averages a certain number of weeks of paid salary per year of service. It may also be agreed on between employer and employee whether the severance is provided as a lump sum or given as a continued salary. Those setting up a severance payment plan should consider tax payments, potential health coverage from the employer if the payments are spread out and the inability to collect employment insurance while receiving severance.
Severance must legally be paid to an employee if the employee’s termination falls under the WARN Act, also known as the Narrow Worker Adjustment & Retraining Notification. This act requires an employer to either provide two months of paid salary and benefits, or give two months notice of impending mass layoffs to employees losing their jobs. Additionally, an individual contract, union or company policy may specify that severance pay must be provided following a termination.