Severance pay—also known as “severance” or a severance package—is the compensation and benefits an employer may provide an employee upon termination of employment. In addition to cash paid as compensation (1-3 months of the employee’s pay, for example), upon severance of employment an employee’s health insurance may be extended for a number of months and the employee may be paid for unused, accrued vacation time and other paid time off.
Whether to provide any severance pay—and if so, how much—is usually in the discretion of the employer. There is no requirement in the Fair Labor Standards Act (FLSA) (federal law) for severance pay. Severance pay is a matter of agreement between an employer and an employee (or the employee's representative) and is often based on the employee’s length of employment with the employer. The federal government’s Employee Benefits Security Administration (EBSA) may be able to assist an employee who did not receive severance benefits under their employer-sponsored plan.
Employers often offer severance packages to employees who are laid off or whose jobs are eliminated because of downsizing. Some employees who resign, retire, or who are terminated may also be paid a severance package—usually in exchange for signing a waiver of any claims against the employer. Although federal and (most) state laws do not require employers to pay severance pay, severance pay can be a gesture of goodwill by the employer and may help the employee transition to a new job or career.
But if an employer pays an employee severance pay in a lump sum (without the continuation of ongoing benefits like health insurance and vacation pay) the employee will no longer be on the employer’s payroll and may promptly file for unemployment insurance benefits. For this reason, an employer may require an employee to sign a statement that the employee is voluntarily resigning and will not seek unemployment insurance (unemployment insurance claims may increase an employer’s insurance premiums). An employer may also extend the severance pay over some period of time to keep the employee on the payroll and ineligible for unemployment insurance—at least for the near future.
Some states (Idaho, Maine, Massachusetts, Rhode Island) may require an employer to pay severance pay in the event of a mass layoff or plant-or-facility closing.
Severance pay that is promised in a written policy (such as an employee handbook) or employment agreement is generally enforceable as wages due under a state’s payday laws.
In South Carolina, severance pay is not mandated by state law, nor is it required under the federal Fair Labor Standards Act (FLSA). Instead, severance pay is typically a matter of agreement between the employer and the employee. Such agreements may be part of an employment contract, company policy, or a severance package offered at the time of termination. If an employer has a policy or contractual obligation to provide severance pay, it is generally enforceable under South Carolina's wage payment laws. The state does not have specific statutes requiring severance pay even in the event of mass layoffs or business closures; however, federal laws such as the Worker Adjustment and Retraining Notification (WARN) Act may require advance notice or other protections for employees in large-scale layoff situations. Employees receiving severance pay may still be eligible for unemployment benefits, but the timing and amount of severance can affect when those benefits can be claimed. It is advisable for employees to consult with an attorney if they have questions about their rights or the terms of a severance agreement.
