What Is A Severance Agreement?

Severance Agreement

A severance agreement is essentially a separation income paid out to employees after they exit from a company. The contents of severance packages vary from company to company, with specifics typically agreed between the employer and employee.

A severance agreement does more than illustrate terms—it also helps the company prevent lawsuits.

What is typically included in a severance package?

There is no single template of an appropriate severance package as the terms vary by industry and company. However, there are several things that HR teams and employers typically include in severage packages, such as:


When an employee exits a company, one crucial element of their severance package is financial compensation. This typically includes pay up until the termination date. Many companies also offer a lump sum package that can serve as a financial cushion during the transition period and is often seen as a token of goodwill recognizing the employee's services.

Healthcare Benefits

Another vital aspect of severance packages is the continuation of healthcare benefits. Depending on the size of the company, it's often legally required to offer ex-employees the option to continue their healthcare coverage. However, this is usually at the ex-employee's expense.

Retirement Benefits

The severance package could impact retirement benefits as well. In some cases, payments from a retirement or pension plan could decrease unemployment benefits. Therefore, employees must bear this in mind when negotiating their severance package.

Outplacement Services

Some companies offer outplacement services as part of a severance package. These services lend a helping hand to employees in their job search journey following termination. They can include services such as resume writing, interview coaching, and job search assistance.