A normal severance package pays one to two weeks of base salary for every year you worked at the company. There is no federal law that forces most employers to offer severance at all, so the size of any offer depends on your employer’s written policy, your role, your tenure, and how much leverage you have to negotiate. A ten-year employee earning $1,000 per week would typically see somewhere between $10,000 and $20,000 under the standard formula. What follows is how that number is built, what else belongs alongside it, and the handful of situations where the payment is not optional.
How the Standard Formula Works
Most companies that offer severance use a simple multiplier: one or two weeks of your base pay for every full year of service. Salaried employees generally have their annual base salary divided by 52 to get a weekly rate. Hourly employees usually see the calculation based on average weekly hours over the most recent quarter, which keeps the math honest for workers whose schedules fluctuate. Bonuses, commissions, and overtime are typically excluded unless the company’s written policy or your employment contract says otherwise.
Many employers set a floor and a ceiling on top of the formula. A common minimum guarantees four weeks of pay even if you only worked a year or two. The ceiling often caps total severance at around 26 weeks (six months) of salary. Those guardrails mean that a 20-year veteran and a 15-year veteran at the same salary may walk away with identical checks.
Executive Packages Look Different
The one-to-two-weeks-per-year benchmark is a rank-and-file number. Research analyzing CEO departures found the median payout was roughly eight months of base pay, with the middle 50% of executives receiving between five and thirteen months. Fewer than 10% received less than three months, and a similar share received more than 18 months.
Executive agreements also routinely include equity provisions. A common structure accelerates the vesting of stock options or restricted stock units that would have vested within the next six months. When the departure happens during or just after a company sale, full acceleration of all unvested equity is standard. These terms are almost always negotiated at hiring, not at termination, which is why rank-and-file employees rarely see them.
What Else Belongs in the Package
Cash is the headline, but a good separation agreement addresses several other pressure points, and their dollar value can rival the base severance number.
Health Insurance
Federal law lets you keep your employer-sponsored health plan for up to 18 months through COBRA, but you pay the full premium yourself, which can run up to 102% of the total plan cost (your share plus the employer’s share plus a 2% administrative fee).1U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Workers That is why negotiating employer-paid COBRA for the first few months is one of the most valuable asks in any severance discussion. Some companies will cover the full premium for a set period; others will continue your coverage at the employee rate you paid before the layoff. Either approach saves hundreds or thousands of dollars per month compared to paying the full COBRA rate out of pocket.
Accrued Vacation and PTO
Whether unused vacation converts to cash depends on where you work. Some states treat accrued vacation as earned wages that must be paid out at termination regardless of company policy. Others leave it entirely up to the employer’s written policy, meaning a handbook that says “use it or lose it” can wipe out your balance. If your state doesn’t mandate payout and your employer’s policy is silent, this is a negotiation point worth raising.
Outplacement Services
Many mid-size and large employers include outplacement services covering resume writing, interview coaching, and job placement assistance for a set period. The value varies widely, and you may be able to negotiate a cash equivalent if the services do not match your career level or industry.
Lump Sum or Salary Continuation
Employers typically deliver severance one of two ways, and the choice matters more than people realize. A lump sum drops the entire amount into your account at once. Salary continuation keeps you on payroll at your regular pay schedule for a set number of weeks or months.
Salary continuation can carry your health plan and let you continue accruing certain benefits during the payout period. The downside: some employers stop payments if you land a new job before the severance period ends, on the theory that severance was meant to bridge unemployment, not stack on top of a new salary. Others pay regardless because the severance is what they gave you in exchange for your legal release.
A lump sum gives you more control. The money is yours regardless of when you start working again, and in states where severance offsets unemployment benefits, taking it all at once may let you file for benefits sooner. The tradeoff is a larger upfront tax bite, since the IRS treats the entire payment as supplemental wages in the pay period you receive it.
Taxes Take a Real Bite
Severance is not taxed at any special rate. The IRS treats it as supplemental wages. Your employer will withhold federal income tax at a flat 22% on any lump-sum severance up to $1 million, with the excess withheld at 37%.2Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide That 22% is only what gets taken out upfront. Your actual liability depends on your total income for the year, so you may owe more at filing time or get some back as a refund.
Social Security tax (6.2%) applies to severance up to the 2026 wage base of $184,500 in combined earnings for the year.3Social Security Administration. Contribution and Benefit Base Medicare tax (1.45%) applies to every dollar with no cap. Roughly a third of a lump-sum severance payment will disappear to withholding before it hits your account, though the final number depends on your bracket.
One other tax-adjacent point: file for unemployment as soon as you lose your job, even if you are receiving severance. Some states let you collect immediately; others treat severance as continued wages that offset your weekly benefit. Benefits are calculated on recent earnings, and waiting to file can hurt your benefit amount. The worst outcome from applying early is a delayed first payment.
When Severance Is Actually Required
The Department of Labor is explicit: severance pay is a matter of agreement between the employer and the employee, not a general legal entitlement.4U.S. Department of Labor. Severance Pay Three situations create binding obligations that override that default.
The WARN Act
Employers with 100 or more full-time workers must give 60 days’ written notice before a plant closing or mass layoff under the Worker Adjustment and Retraining Notification Act.5Office of the Law Revision Counsel. 29 USC Ch. 23 – Worker Adjustment and Retraining Notification If the employer skips or shortens that notice, it owes each affected employee back pay and benefits for every day of the violation, up to a maximum of 60 days. This is not technically severance, but it functions identically. Several states have their own versions with lower employee thresholds or longer notice, and at least one (New Jersey) requires actual severance payments on top of the notice.
Contracts and Union Agreements
An employment contract with a termination-without-cause clause specifying a severance amount is enforceable regardless of company policy. Union members covered by collective bargaining agreements often have defined severance schedules written into the contract. Employers cannot unilaterally change either.
Employer Plans Under ERISA
Once a company establishes a formal severance plan, it may become subject to the Employee Retirement Income Security Act. ERISA treats severance as a welfare plan (rather than a pension plan) as long as the total payout does not exceed twice the employee’s annual compensation and payments are completed within 24 months of termination.6U.S. Department of Labor. Advisory Opinion 1992-03a If your employer has a written severance policy covering a class of employees, it cannot arbitrarily deny you benefits the plan promises. The plan creates enforceable rights.
Room to Negotiate
Most people sign the first offer because they do not realize there is room to push back. There almost always is. The company is buying your legal release, in which you give up your right to sue for wrongful termination, discrimination, retaliation, and most other employment-related claims.7U.S. Equal Employment Opportunity Commission. Q&A-Understanding Waivers of Discrimination Claims in Employee Severance Agreements That release has real value to them, which gives you real leverage.
- More weeks. If the offer uses one week per year, ask for two. They have already signaled willingness to pay something.
- Employer-paid COBRA for three to six months, which for a family plan can be worth more than an extra week or two of base pay.
- Narrower restrictions. If the agreement includes a non-compete or a broad non-disparagement clause, ask to shorten the duration, tighten the geographic scope, or remove it.
- Outplacement or education benefits, which cost the employer relatively little and can be valuable if you are shifting industries.
- Payment timing. Choosing between lump sum and salary continuation based on your state’s unemployment rules and your tax situation can be worth thousands of dollars without changing the gross amount at all.
If you are 40 or older, federal law gives you time protections your employer cannot waive. Under the Older Workers Benefit Protection Act, you get at least 21 days to consider any severance agreement that includes a release of age discrimination claims, extending to 45 days when the offer is part of a group layoff or exit incentive program. After signing, you have seven days to revoke, and the company cannot shorten that revocation period.8Office of the Law Revision Counsel. 29 U.S. Code 626 – Recordkeeping, Investigation, and Enforcement The agreement also must advise you in writing to consult an attorney.
Workers under 40 do not have those statutory guarantees, but any reasonable employer will give you at least a few days. An employer that pressures you to sign on the spot is telling you something about what is in the document. Regardless of your age, take the agreement to an employment lawyer before signing. The cost of a one-hour review is trivial next to the value of knowing what you are giving up.