What is Severance Pay?
Severance pay also known as separation pay is the compensation paid by an employer to an employee when their employment is terminated. It is an additional payment beyond the employee’s final regular paycheck and is provided as a gesture of goodwill to help the departing employee during their transition period.
Generally, severance pay is paid when the employee is laid off or because the job no longer exists. However, different countries have different rules when it comes to the severance pay. For instance, some countries such as Hong Kong legally require employers to pay severance payment when the employee has worked with the company for over 2 years and employment is terminated because of redundancy. At the same time, Indonesia requires employers to pay severance pay regardless of the duration of employment and even if the employee resigns voluntarily.
The amount paid as severance pay generally depends on factors such as length of employment, salary, and company policies. For example, it may be calculated as one or two weeks of pay for every year the employee was employed at the company.