DEFINITION of 'Severance Package'
A bundle of pay and benefits offered to an employee upon being laid off from a company. The receipt of a severance package is contingent upon signing a severance agreement. The amount of money received is usually based on the length of employment prior to termination, and may include payment for unused vacation and sick days, and unreimbursed business expenses. Other continued benefits that may be offered or negotiated include life insurance, disability insurance and the use of company property, such as a laptop, cell phone, personal digital assistant (PDA) or vehicle. Companies may also offer outplacement assistance, to help the former employee find a new job.
BREAKING DOWN 'Severance Package'
Your employee handbook should include information on your company's severance package policy. Keep in mind, however, that the handbook may be out of date, and that severance packages are negotiable. Companies are not required to offer a severance package, and in fact may not be able to offer one if they are letting employees go because they are in major financial trouble.
Accepting a severance package may make you ineligible to file a wrongful termination suit or collect unemployment insurance. As well, the severance agreement may include a noncompete clause, which could interfere with your ability to find a new job. Before accepting any severance package, read the severance agreement carefully and consult a lawyer if necessary.