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Severing in the Employment Relationship


Area of Expertise:

  • Business & Management



            Severance package is a technical term that refers to the benefits given to an employee when he/ she leave employment either voluntarily or involuntarily. Severage package is an additional pay besides the employee’s remaining standard pay.  It may encompass payment based on period of service, unused sick leave or vacation, life, medical, or dental insurance, stock options, and retirement benefits among others. It is a pay that focuses on the employees who retire or are retrenched. It is aimed at protecting the freshly unemployed, in some special cases, it granted to individuals who are sacked or resign irrespective of the circumstances. In most firms, severage package is determined by the human resources department that determines the employee package. Most governments regulate severage package in efforts to protect the workforce. Upon signing the severage contract, the employee cannot take legal action against the employer upon illegal dismissal and cannot subscribe for unemployment benefits, otherwise, if the employee does so, she/ he is required to give back the severage package. This research paper focuses basic issues that surround severage package and how it influences the relationship between the employer and the employee.

Severage package and its influence on the employee and employer relationship

            According to the United States Office of Personnel Department (2013), not all employees are eligible for severage package. For one to be eligible for the pay, one must have worked for more than 12 months, must be appointed on merit, and must not terminate the relationship with the employer based on inefficiency. In addition, one is denied the package when employed under non-qualifying appoint, declines a reasonable offer like appointment to another position, is employed for a period ending within one year, receives injury compensation, and is eligible for immediate annuity from the government’s retirement system.

            The employer offers the employee the package as ‘thank you’ and hence deters the employee from being employed by a competitor. An employee may resign from a firm when he/ she gets a written notice about being involuntarily separated from the employee. Such an employee is eligible for the package, however, when an employee voluntarily resigns, he/she is not eligible for the severage package (Swierczynski, 2008).There are a number of factors that a firm must consider when considering the severage package. These factors include the basic pay, age, basic severage package allowance.  In most economies, there are bodies that are set to calculate the severage package (United States Office of Personnel Department, 2013). When an employee receiving the package gets employed by the federal government, the employee pay either gets terminated or suspended depending with the terms of payment.

            Severage pay comes along with pros and cons. For an organization that exists in a competitive environment, it is recommendable that it offers the package. This is because the employer limits the chances of the employee getting employed by competitors, hence safeguarding the strengths of the employer from the competitors. Another advantage of the package is that it not a legal requirement, and is done at a company’s option. A firm paying the package increases its goodwill and is at competitive advantage because the package is kind of a consolation for employees who retire involuntarily. An organization offering the package in a professional manner limits the chances of the firm damaging its public image in cases when an employee decides to sue the employer. 

One problem associated the severage package it is a costly endeavor especially for a firm with a feeble financial muscle. It also increases the administrative costs for the firm. This is based on the rationale that the firm has to maintain pay records for employees who have ceased to be employees of the firm (Nillson, 2000). Irrespective of the above highlighted advantages and disadvantages of the severage package, Coca-Cola and General Motors are among the most successful global brand names that have continues to pay the package to their employees who retire involuntarily. Despite the cost linked to the pay, these firms have a positive public image, and that has improved their competitive advantage. In addition, the employee’s lawyers are consulted when calculating the severage package that limits the chances of future legal suits, and hence creating a positive public image for a firm.


            Severage package is a sensitive issue that determines the relationship between employers and employees. To a large extent, it also affects the successfulness or failure of an organization due to its impact on t\goodwill and reputation. The package is offered in efforts to improve the future relationship between the employer and the past employees, however, for an employee to quality for entitled for the package; the employee must meet certain conditions. The main advantage of the firms offering the package is that the employer remains at a competitive advantage because the past employees can maintain the firm’s strengths from the competitors, nonetheless, that comes with a cost. In efforts to protect the work force, most governments play a key role in formulating the severage package.




Nilsson, E. (2000). Severance package. Minneapolis, MN (1400 AT & T Tower, 901 Marquette Ave So., Minneapolis 55402-2859: Third Option Publishers LLC.

Swierczynski, D. (2008). Severance package. New York: St. Martin's Minotaur.

United States Office of Personnel Department (2013). Pay & Leave. Retrieved on 13 August, 2013, from