What Is the Difference Between a Buyout & a Severance Package?

"Buyouts" and "severances package" have quite a bit in common. Perhaps the most important thing is that if you're being offered either one, you might not be working for your employer much longer. The terms are often used interchangeably, but severance can go to anyone who loses a job, while a buyout is an offer designed to get people to leave.


Terms of Employment

Most jobs in the U.S. are "at will" employment. That means that the employer or the employee can end the work relationship at any time for any reason: Your boss can fire you, or you can quit, and neither of you can compel the other to let you (or make you) stay. But if you have a contract or some other agreement spelling out the terms of your employment, it may not be so simple. Your employer may not be able to get rid of you without paying you a certain amount of money or providing certain benefits. The term "buyout" has long been used to describe provisions that allow either side to terminate an employment contract. The term has also come to describe financial offers made to at-will employees to induce them to volunteer for layoffs.


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Severance is money and other benefits designed to help you make the transition to unemployment -- and, hopefully, re-employment. An employer might offer severance equal to one or two weeks' pay for each year you've worked there, or it might offer you several times your annual salary. It depends on the employer, your job and the circumstances. A severance package may also include such things as continued health insurance coverage and continued company contributions to your pension plan. Companies may provide severance to employees regardless of whether those employees volunteered to leave or were terminated.



A buyout is an alternative to traditional layoffs. In the typical layoff, the employer decides who has to go, and those people lose their jobs. Buyouts give workers a certain amount of control over who stays and who goes. Often, an employer will decide it needs to cut a certain number of jobs, say 10. It puts the buyout offer on the table, and the first 10 people to take the offer get whatever the company offered. A buyout offer always includes a severance package. The buyout offer might even be nothing but a severance package.



Buyouts and severance packages often come with conditions. People taking either one may have to sign an agreement waiving their right to sue the company or prohibiting them from publicly discussing their employment or their departure. An employer might even seek to bar someone from working for a competitor for a time.