In Chinese employment law, financial compensation is a monetary payment made to an employee for the termination or cancellation of a contract where the employee is not at fault.

Financial compensation is fundamentally different from damages in the law. Damages can also be owed for employer’s breach of the employment contract or for other civil damages, and is distinguished from how damages is paid to right a wrong; compensation does not implicate civil wrongs.

The financial compensation owed to a terminated employee is different from unemployment benefits, which is an entitlement created as a result of unemployment insurance contributions. Unemployment benefits in particular are only available while the individual is unemployed in order to provide social security, whereas severance payments is a single lump sum payment meant to pay for the employee’s loss of earnings.