As tough as it is to lose your job in uncertain economic times, the blow can be less crushing if your employer cushions it with a severance pay package. However, in most cases, this will be the exception and not the rule.

Severance pay is sometimes offered by companies as encouragement to employees to take voluntary early retirement. It can also be given to terminated workers as inducement to sign agreements that they won’t sue for wrongful discharge.

When workers are discharged through no obvious fault of their own, such as an economic downturn that results in a Reduction in Force, corporations sometimes offer their employees severance pay. While more rare, there are instances where employees are legally entitled to receive severance pay. Some include:

— Having an employment contract that stipulates your right to receive severance pay upon separation from employment

— The company has a written policy stating that workers are entitled to receive severance pay

— When certain provisions of the W.A.R.N. Act are applicable for your company that mandate a 60-day notice for workers prior to layoffs

Severance may be calculated by a predetermined company policy, but failing that, there can be some wiggle room for negotiation. In most cases, the formula factors in the following:

— Size of the company

— Number of years worked by employee

— Whether or not severance pay is included in the employment contract

— Employee’s position in the corporate hierarchy

Severance does not always have to be monetary. Other considerations can be extended health care benefits, career assistance, job placement services and life insurance.

In cases of termination where a severance packet is either offered or expected, laid off employees should not sign any documents in haste without seeking advice from a qualified legal professional. Severance pay can affect eligibility for unemployment compensation as well as pose certain tax liabilities depending on the distribution and amount (staggered payments vs. a single lump sum).

Source: U.S. News & World Report, “3 Severance Pay Questions Every Employee Should Ask,” Lindsay Olson, accessed April. 01, 2015