Military Separation Pay vs. Severance Pay

Some veterans received separation pay or severance pay when they were discharged from the US Armed Forces. What is the difference between the two and why do only some veterans receive them?

Military Separation Pay

Involuntary Separation Pay

Involuntary Separation Pay can be given to a service member who is denied reenlistment or denied continuation of their active duty. Service members may not be reenlisted or allowed to continue their service for various reasons, some of which are a reduction in personnel or failing to meet certain physical requirements. This is a one-time, lump sum payment.

There are two levels of Involuntary Separation Pay: full and half. Full Involuntary Separation Pay can only be paid to veterans who have an honorable discharge. It is calculated by multiplying monthly base pay x 12 x 10% x years of service. Half Involuntary Separation Pay is half of full Involuntary Separation Pay, and can be given to veterans who have an honorable or general discharge.

The following are some circumstances that make a service member ineligible for military separation pay:

• The service member is separated at their own request.
• They are separated from active duty for training or full-time National Guard duty for training.
• They are eligible for retirement pay based on their military service.
• The service member is separated due to a court-martial sentence.
• They are separated under other than honorable conditions.

Severance Pay

Disability Severance Pay

Disability Severance Pay (DSP) is a lump sum benefit for service members who are discharged due to a disability. DSP is payed to a service member who is determined to be unfit to perform their required duties, and is then given a disability rating to reflect the severity of their condition. These ratings are based off VA’s Schedule for Rating Disabilities (VASRD), and can range from 0% to 100%.

In order to be eligible to receive DSP, a service member must meet these criteria:

• Be found unfit to perform their required duties
• Have less than 20 years of military service
• Have a disability rating of 20% or less at the time of separation (30% or higher result in disability retirement)

DSP is calculated by adding 2 months of basic pay for each year of service, up to a maximum of 12 years (24 months of basic pay).

Service members do not apply for DSP. The military will instead refer the service member to the Medical Examination Board or the Physical Examination Board. The Board will determine if the service member’s disability is disqualifying for further military service.  If so, the case is referred to VA for an initial rating decision used by the military to determine whether the service member receives a medical discharge or a medical retirement. If VA awards a disability rating of 30% or higher, the member is placed on either the Permanent Disability Retired List (PRRL), or the Temporary Disability Retired List (TDRL) if they believe the condition will improve.

Are Separation Pay and Severance Pay Recouped?

In most cases if a veteran received separation pay or DSP, and then is later awarded VA disability compensation, VA will recoup the veteran’s separation pay or DSP. Recouping means that VA will deduct the separation or severance pay from other benefits awarded to the veteran, such a disability compensation.

Check out when and how VA can recoup military separation pay and severance pay here.