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What is Post-Separation Pay?

By: Mario Hernandez

Legal Counsel to Commissioner Joe Esparza 

There are various types of payments that employers can make to former employees after they have separated from the company. This article will explore three types of post-separation pay: severance pay, wages in lieu of notice, and accrued leave payouts.

Severance Pay

Severance pay is payment that the employer has obligated itself to provide pursuant to its own severance pay policy or agreement. Generally, severance pay is payment that an employer provides to a former employee and is tied to certain types of characteristics such as length of service with the company. Severance pay can be paid in a lump sum or over time in installments – pursuant to the employer’s severance pay policy or agreement. For more information, please visit the following link: https://efte.twc.texas.gov/severance_pay.html.

In addition, severance pay can affect an unemployment claim. For more information on this, please visit the following link (in particular, Item f): https://efte.twc.texas.gov/final_pay_severance_benefits.html.

Wages in lieu of notice

Wages in lieu of notice is a type of post-separation payment that the employer is not obligated to provide to a discharged employee but does so to compensate for not giving advanced notice of the job separation. This type of payment is generally not accompanied by any terms or conditions for receipt. Wages in lieu of notice have sometimes been described as money that an employer provides to a former employee in order to help them while they are looking for a new job.

Like severance pay, wages in lieu of notice can have an effect on an unemployment claim. For more information on this, please visit the following link (in particular, Item f): https://efte.twc.texas.gov/final_pay_severance_benefits.html.

Accrued Leave Payouts

A common question employers have deals with whether they are required to pay out any accrued leave balances a former employee might have when they are separated from employment. The answer depends on the employer’s written policy or agreement on accrued leave.

If the policy or agreement states that it will not pay out accrued leave upon the employee’s separation, or if the policy or agreement is silent on the matter, the employer would not be obligated under the Texas Payday Law to provide the payment.

On the other hand, if the employer’s written accrued leave policy or agreement does state that the accrued leave will be paid, then the employer must follow its policy or agreement and pay the accrued leave. This is important because the terms of the written policy or agreement would be enforceable under the Texas Payday Law. Please visit the following links for more information on accrued leave payouts: https://efte.twc.texas.gov/accrued_leave_payouts.html

https://efte.twc.texas.gov/vacation_and_sick_leave.html#accruedleave.

Conclusion

Employers sometimes provide post-separation pay as part of their policies and procedures or to assist a former employee until they can find another job. By being familiar with different kinds of post-separation pay, an employer will have a better understanding of any potential obligations it might have with these types of payments.