What Are the Guidelines for Severance Pay?

There are no official legal guidelines covering severance pay, though it is commonly received based on a prior agreement between an employer and employee, according to the U.S. Department of Labor. The payment is usually made when an employee and employer sever ties. The agreement denotes the amount of payment due to the employee and under which circumstances it is paid. If the employee quits the job, severance pay may not be due.

The amount of severance pay received is usually determined by how long the employee has worked for the employer, states HR expert Susan Heathfield for About.com. Most employees receive one to two weeks of their regular pay for each year worked. Executives often receive as much as a month for each year, while the severance pay of senior executives is generally agreed upon through contract negotiation. For senior executives, the severance pay package often includes benefits, assistance in finding another position and sometimes even a stock bonus.

While an employer is not required to provide severance pay for an employee, paying for time worked prior to the separation from the company is required by the Fair Labor Standards Act, explains Heathfield. Included in the required payment is any paid vacation time the employee has earned but not taken.