Why severance pay matters to a first-time founder
Ending employment can create an immediate cash cost and legal duties that founders must budget for. The amount may come from the employment contract, company policy, collective agreement or local law. Mishandling it can lead to claims, penalties and lasting reputational damage.
Examples of severance pay
A company makes an employee redundant after three years. Their contract provides four weeks of severance, worth ¥400,000, plus ¥150,000 of unused holiday pay and salary through the notice period. Payroll records each amount separately because their tax treatment may differ.
Common misunderstanding
Severance pay is not the same as every payment made when employment ends. Final salary, unused holiday, notice pay and statutory redundancy pay may be separate entitlements. Calling the whole package severance can hide legal and tax differences between its parts.
When to use it
Plan for it before restructuring, closing a role or negotiating an agreed departure. Check the contract and current employment law in the employee’s jurisdiction before promising a figure. Use qualified HR or legal advice where dismissal rights, discrimination or collective consultation may apply.