Severance refers to compensation paid to an employee upon involuntary termination of their employment — typically in the context of redundancy, restructuring or role elimination rather than dismissal for cause. It represents the financial settlement of the employment relationship on termination, and its terms are typically a combination of statutory minimum requirements and contractual or policy commitments made by the firm above the legal floor.

In consulting, severance is a meaningful but often underplanned element of total workforce cost. Firms that grow and contract in response to client demand cycles, that restructure practices in response to market shifts, or that manage Partner exits frequently incur severance costs that are significant at the individual level and material at the firm level if managed without a clear framework.

Components of a Severance Package

A severance package typically comprises some combination of:

• Statutory redundancy pay — The legally mandated minimum payment on redundancy, which varies significantly between jurisdictions. In some markets (notably several continental European countries), statutory redundancy provisions are generous and accrue with tenure; in others (some Asian and Middle Eastern markets), statutory requirements are minimal. Employers must pay at least the statutory minimum and cannot waive it contractually.
• Notice pay — Payment in lieu of notice, where the employer elects to end the employment relationship immediately rather than requiring the employee to work out their notice period. The notice period (and therefore the payment) is typically defined in the employment contract and may be significantly longer at senior levels — 3–6 months for Senior Managers and above is not unusual in consulting.
• Enhanced severance — Payments above the statutory minimum, offered either as part of a contractual commitment (e.g. a defined enhanced redundancy policy applied consistently) or negotiated individually. Enhanced severance is particularly common at senior levels, where the firm has greater flexibility and the individual has greater negotiating leverage.
• Benefit continuation — Extension of health insurance, pension contributions or other benefits during the notice period or for a defined period post-termination. More common in markets where employer-provided benefits are a significant component of the total package.
• Treatment of bonuses and deferred awards — Whether the departing employee is entitled to a pro-rata bonus for the period worked, and what happens to unvested deferred compensation or phantom equity. Good leaver provisions typically provide favourable treatment; dismissal for cause typically results in forfeiture. See Vesting.

Severance and Garden Leave

In many consulting firm senior exits, the notice period is served on garden leave rather than actively — the employee is paid their full salary and benefits during the notice period but is not required (or permitted) to work, attend the office or contact clients and colleagues. Garden leave is used to protect confidential information, client relationships and team stability during the transition, and is most common for senior consultants and Partners who hold significant client or market-sensitive knowledge.

Severance Across Jurisdictions

Severance cost and complexity vary enormously across the markets where consulting firms operate. In some continental European markets — France, Italy, Germany and others — the combination of statutory redundancy provisions, required consultation processes and notice obligations makes involuntary termination a lengthy and expensive process. In common law markets (UK, US, Australia), the statutory floor is typically lower but contractual commitments and negotiated settlements can be substantial at senior levels. In many Asian markets, severance requirements are defined by local labour law provisions that differ significantly from Western European norms.

International consulting firms must model severance costs by market when planning restructurings or workforce reductions — a headcount reduction that appears straightforward from a financial model perspective may be significantly more expensive and complex in practice when local legal requirements are factored in. See Cost of Labour and Total Cost to Company.