Severance pay is the amount a company pays to its employees after completion of employment. It is optional and not mandatory for the employer unless it is specifically laid down in the employment contract of the employee handbook/ manual. Severance pay ensures a smooth transition for both the employer and employee.
Severance pay may include certain benefits like accrued vacation and extended health insurance. The company may also provide an employee with Outplacement assistance.
Employers may offer packages to employees who are laid off due to downsizing or employees who retire. Some employers may choose to give the same benefits to employees who resign or are fired.
Severance is a goodwill gesture by the employer and provides the employee a buffer between working and unemployment.
Outplacement assistance is helping the exiting employee in finding a new placement by providing resume writing, job search and job coaching, use of office phone, and other equipment. Outplacement makes the transition for the employee as well as employer smooth and less stressful.