Severance pay is a financial package offered to employees when their job is terminated. For freelancers, understanding this concept highlights key differences in financial security.
What is Severance pay?
Severance pay is compensation given to a regular employee when their employment ends involuntarily, often due to layoffs or redundancy. It's typically a lump sum or continued salary for a set period. This practice is standard in many traditional employment relationships but operates differently for independent workers.
Why is this important?
As a freelancer, you are your own business. Understanding severance pay underscores a major difference from traditional employment: you are not entitled to it. This knowledge highlights the need for you to create your own financial safety nets and plan for income gaps between projects.
How does it work?
For employees, severance is often based on tenure and salary, and may be mandated by law or company policy. As a freelancer, you won't receive this. Your protection comes from your contract terms, such as kill fees for canceled projects or notice period payments, which you must negotiate yourself.
Pros and cons
The main advantage is financial cushioning during job transition. The clear con for freelancers is the lack of automatic entitlement. However, this trade-off comes with greater freedom and earning potential. The key is proactive planning to offset this absence of traditional benefits.
Conclusion
Severance pay is a employee benefit, not a standard freelance one. Your financial stability depends on your business practices. Focus on building a robust emergency fund and negotiating strong contract terms to create your own version of security.
Ready to freelance?
Download the HFS Freelancers app and discover flexible shifts in your area. Or explore more terms in our knowledge base.
