The definition of severance pay includes any regular pay due to the employee, payment for unused vacation time or sick leave, retirement benefits, and other benefits, besides additional payment of usually a week or two’s pay for every year of service.
The Fair Labor Standards Act (FLSA) law only mandates employers to pay to the employee leaving employment for any reason any wages due to the employee through the last day of work, including any overtime, bonuses, commissions, reimbursement of expenses, and payments for unused vacation time. Most states require the employer to release final pay to the employee either immediately or within a specified time.
The law does not mandate the employer to make any additional severance payment, or wages for unused sick leave, unless the company policy or employment contract specifies such payment. Severance pay in such cases are part of benefits available to the employee, and once voluntarily established, fall under the Employee Retirement Income Security Act of 1974 (ERISA) that requires employers to establish and maintain such plans with equity and accountability.
The Worker Adjustment and Retraining Notifications (WARN) Act requires covered employers who lays off employees without providing the mandatory 60 days notice, except under unforeseen circumstances, to provide back pay and benefits for the period during which the employer violates WARN Act. Any wages or unconditional payments paid to the employee during such period, including any severance pay may be deducted from such WARN act payouts.
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