In most circumstances, employers are not legally required to pay severance to fired employees -- but you may want to consider it anyway.

Some employers assume that they have to offer a severance package -- some combination of money and continuing benefits -- to fired employees. In many cases, however, this assumption is incorrect.

When You Must Pay Severance

There are only two situations when you may be legally required to provide severance pay. First, a handful of states require employers who are closing a facility or laying off a large number of workers to pay a small amount of severance. (Contact your state labor department to find out if your state has this type of plant closing law.)

Many employers routinely give severance packages to long-term employees who are fired for reasons other than serious misconduct, even if they are not legally required to do so. Why? To soften the blow of being fired and to buy a little insurance against lawsuits. A severance package may help sweeten the sour grapes a worker feels about being fired. And a happier former employee is a less litigious former employee.

If you decide to pay severance, the most important rule is to be consistent. The amount of severance can vary depending on how long the employee has worked for you and the employee's job category. But be sure to treat your employees equally. If you are evenhanded and uniform in paying severance, you are less likely to face claims of discrimination (for example, that men received higher severance pay than women).