Questions often arise about the Fair Labor Standards Act and whether it mandates severance pay for employees.
The FLSA is a federal law governing minimum wage, overtime pay eligibility, recordkeeping and child labor standards. However, it does not specifically require employers to offer severance pay to departing employees.
Severance pay explained
Severance pay is generally a matter of agreement between an employer and an employee upon termination of employment. The FLSA does not dictate the terms of severance packages. It leaves that to the discretion of the employer. Employers may offer a package as a gesture of goodwill, a means of fostering positive relationships or to ease the financial transition for departing employees.
Contained in contracts
Severance agreements typically come from employment contracts or company policies. Some employers may have guidelines outlining the process for offering one. Others may determine such matters on a case-by-case basis.
Contract clauses or company policies that cover this topic will often outline the terms and conditions. An agreement will usually explain the amount of severance pay, the circumstances of an offer and any obligations the departing employee must fulfill to receive the benefits.
While the FLSA does not mandate severance pay, it may influence agreements. This law focuses on ensuring fair compensation for employees, which may help to lead a company to offer a severance package.
Employees who are uncertain about their entitlement to severance pay should refer to their employment contracts and company policies. They should note any offer is at the discretion of the employer, and the FLSA has no impact on whether the employer will extend the option.