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Severance Pay
National Summary
Severance benefits are payments made to employees upon termination of employment caused by events that are beyond their control, such as workforce reductions, plant closings, company takeovers, and mergers. Severance benefits are sometimes offered to encourage early retirement or voluntary resignation, or to discourage terminated employees from suing an employer. Severance benefits are not required by federal law and are required only by a handful of states. However, most companies offer severance pay. The payments themselves may be a onetime occurrence or spread over a period of time. These benefits are usually calculated by the employee's length of service with the company (e.g., 1 week of severance pay given for every year employed with the company).
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