Can Contractors Receive Severance Pay?

Can Contractors Receive Severance Pay?

During mergers and downsizing in an organization, some employees could be laid off. On some occasions, contracts can be terminated due to other reasons. When such dismissals happen, employees could get a severance package paid to them because the contract has been 'severed'. In some countries, all employees benefit from severance pay, while in others, the power rests with the employer.

In cases of unfair dismissal, employees may file a legal suit to get a severance package. However, they may not always be in a legal position to push for compensation. Getting a dismissal lawyer from firms such as will enable them to stand a better chance in the case.

Employee Vs Contractor

One confusing aspect about severance packages is who can benefit from them. In an organization, there could be two types of workers; employees and contractors. While it's clear that employees can benefit from this pay, the concern is whether contractors can also benefit from this compensation.

While both are categorized under a company as workers, the main difference comes in the nature of their employment. Understanding this difference will clearly highlight whether contractors, like regular employees, are entitled to severance pay.

In an organization, employees typically work for an employer. They're usually contracted for a specific period. The relationship between employees and an employer is usually based on long time frames, like years. The employer provides the work tools, office space, supervises the work done, and determines how the work should be done.

The law can deem you as a contractor if you set your schedule, determine how the work is done, and have the ability to employ other workers. Independent contractors can still be categorized as employees by law due to their relationship with the employer.

Can Contractors Get Severance Pay

Usually, independent contractors aren't entitled to severance pay. This is because they aren't considered employees of an organization. However, there are three special occasions under which they may get compensated if the contract is terminated:

  • As stated In The Contract

Before working for an organization, some terms and conditions can be set. One of the terms set could be about the severance package. If the agreement states that the contractor is to be paid, the employer must pay the stipulated amount. It’s usually crucial for a contractor to involve a legal practitioner when signing contracts to get the best out of it.

  • A Contractor Is Considered An Employee

In some cases, a contractor can be considered an employee under the law.  The court of law usually determines this based on the nature of the relationship between the employer and the contractor. In cases wherein employers control the nature of work, such as people to be employed, how the work should be done, and other forms of supervision, contractors are identified as employees.

There are also cases wherein contractors work for an employer for a long time and are considered full-time employees. The nature of their work limits them from working for other companies, and this job is their primary source of income. In these two cases, the contractors may be entitled to a severance package.

severance pay for contractors

  • Goodwill Of The Employer

When a contract termination occurs, an independent contractor can still get a severance package from the employer. This happens to maintain a good relationship between the employer and the contractor. However, the pay may not amount to the actual severance package, as this is usually considered as a token of appreciation. Employers do this to keep the company's good image by avoiding legal actions.

Getting A Severance Package

The most common ways that employees get their severance package is through a distribution plan or as one lump sum. The one-time payment is usually a good way for employees to collect their pay. The payments may not be completed in a distributed plan, and the beneficiary will get a lesser amount.

The compensation is usually calculated based on how long an employee worked for a company. Usually, an employee is paid a two-week wage for every year they work in the company. For contractors, however, they may base it on the financial risk or on the agreement amount in their contract.


Even though a contractor can seem at a disadvantage over regular employees in severance pay claims, they can still earn the package. However, it is a guarantee. Therefore it's essential to seek legal help when such cases arise so that you can get compensation.

You should keenly read your contract before signing it. By doing this, you may take advantage of any offer regarding severance pay or negotiate for one if it doesn't exist.

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