Severance Pay

Severance pay that is promised in a written policy or other form of agreement is an enforceable part of the wage agreement under the Texas Payday Law. Under § 821.25(b) of the Texas Payday Law rules, severance pay is additional pay for an employee's past work that is given at the end of the employee's employment, and is usually, but not always, based upon a set formula such as length of prior service. It is a payment that the employer has somehow previously obligated itself to give, either orally or in writing. Only a written severance pay obligation is enforceable under the Texas Payday Law. It is not the same as wages in lieu of notice, which is a post-termination payment that the employer has never previously obligated itself to give. Just like the name implies, it is a payment that is given in lieu of advance notice of termination, and it is not based upon any particular formula, but rather upon whatever arbitrary amount the employer thinks is appropriate to give. It is usually given to "make up for" the lack of advance notice and can be given in a lump sum or in installments. A payment of wages in lieu of notice is not enforceable under the Texas Payday Law, since there was no prior obligation to give it.

As a matter of enforcement policy, TWC's Wage and Hour Department will enforce whatever severance payment interval and conditions are set forth in the written policy or agreement creating the obligation to make the payment. Example: if in an offer letter, the employer promises the offeree three months' severance pay if the employee's job comes to an end for reasons other than "misconduct", and the letter prescribes the payment intervals as one-third 30 days after the last day of work, the second third 60 days out, and the final third 90 days following the date of the work separation, then the employer will be expected to pay the severance pay in the specified amounts at 30-day intervals for the 90 days following the last day of work, as long as the facts show that the employee resigned, was laid off for economic reasons, or the work came to an end for any reason other than misconduct on the ex-employee's part.

In 2007, the Legislature amended the Texas Family Code to provide that employers who pay severance pay, which under the law would include wages in lieu of notice, must deduct from that payment an amount equal to whatever is specified in a child or spousal support order pertaining to the departing employee (see Texas Family Code § 158.214). For example, if a support order requires a monthly garnishment of $100, and two months' severance pay or wages in lieu of notice is given, the employer should deduct $200 from such payment for purposes of complying with the support order. Since such a garnishment would be pursuant to a court order, it would not have to be authorized in writing by the employee. For details, see the Attorney General's office Web site at this link:

See also Final Pay - Severance Benefits in the Work Separation Issues section of this book.

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