Severance pay is compensation and/or benefits that an employer provides to an employee after their employment ends, typically when the employee is laid off, their job is eliminated, or they retire. It serves as financial support during the transition from employment to unemployment and may include cash payments, extended health insurance, outplacement assistance, and other benefits

. The amount of severance pay often depends on the length of the employee's service and the employer's policies. Commonly, it is calculated as a certain number of weeks or months of pay per year of employment-for example, one to two weeks' wages per year worked or half a month's salary per year of service in some countries

. Severance pay may also include compensation for unused vacation time and other accrued benefits

. Severance packages are usually offered as a goodwill gesture by employers and often require the employee to waive the right to sue the company for damages related to their employment termination

. However, employers are generally not legally obligated to provide severance pay unless it is stipulated in a contract or company policy

. In summary, severance pay is a form of financial and benefit compensation given to employees when their employment ends involuntarily, designed to ease their financial burden during the transition period