Which of the following statements about separation pay is true?

Separation pay is a form of compensation provided to employees who leave a company under certain circumstances, such as layoffs or redundancies, and it is intended to provide financial support during their transition. The statement that separation pay does not include allowances and commission is accurate. Separation pay typically consists of the basic salary and may include other forms of standard compensation that are directly tied to the employment.

Allowances and commissions, being variable and often conditional forms of compensation, are generally not counted as part of separation pay. This is because separation pay is designed to be a straightforward sum that reflects guaranteed earnings rather than performance-based income or additional benefits. Hence, understanding the composition of separation pay is crucial for both employers and employees, ensuring clarity on what is included during the termination of employment.