Severance Pay:
Who Gets It And How Much?

Jump to Section

Need help with a Severance Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Is Severance Pay?

Severance pay is compensation that an employer offers to an employee discharged from employment in the form of a severance package. The terms and conditions of severance pay typically accompany an involuntary layoff of the employee for various reasons.

Regardless of the reason, severance pay is generally offered during a meeting between you and your manager or the human resources department. Your employer may also require you to sign a severance agreement to receive compensation. Speak with employment lawyers if you are asked to sign one since it is an employment contract that carries specific legal implications.

How Does Severance Pay Work?

Employers typically offer severance payments to employees under specific situations and circumstances, typically open the employee involuntarily resigning or being laid off. Most employers have policies in employee handbooks that describe their particular methodology of handling severance pay.

Here is how severance pay works in most organizations:

  • The employer informs the employee of an upcoming layoff
  • The employer sets a meeting with the employee to establish the steps
  • The employer offers severance pay that is conditional upon signing a severance agreement
  • The employee accepts the severance package or renegotiates it
  • The employee and employer sign the severance agreement upon reaching an agreement

Upon signing and dating the severance agreement, employees will get a severance package that comes in the form of a single lump-sum payment or recurring payments over a specific period. Severance pay can also entail a continuation of benefits as a condition of the release.

Who Is Entitled to Severance Pay?

Few laws outline who is entitled to severance pay. The Worker Adjustment and Retraining Notification (WARN) Act only provides severance pay if the employer has less than 100 employees and plans to lay off many staff members. If the employer fails to give more than sixty (60) days’ notice, it must provide severance pay.

Aside from the WARN Act, there are no stipulations regarding severance packages. Instead, the law focuses on severance agreements. Depending upon the types of employment contracts in place, there may or may not be a provision for severance pay. Work with an attorney to help you review the law as it applies to your specific situation.

Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Amount of Severance Pay

Severance pay can come in numerous forms, including a lump sum payment and periodic payments. There are no mandates that describe how much severance pay must be offered since it is a benefit of employment contracts that only specific companies provide.

Calculating Severance Pay

Typically, the amount of severance pay you receive is based on a calculation of your wages and the amount of time you have worked for your employer. A company can offer two weeks’ pay for every year of company service. While this is the most common standard of severance pay, it is critical to remember no set amount.

Average Severance Pay

Every severance agreement is unique to the employment contract during at-will employment . How much you can anticipate receiving or paying depends upon company severance policies. If there is no severance policy or agreement in place, you may have the chance to negotiate with a licensed attorney in your state, such as California employment lawyers for contracts governed in California.

Contractscounsel Happy Employee

Image via Pexels by Anna Shvets

Benefits of Severance Pay

While severance pay is generally a courtesy for employees, companies will also find several goodwill benefits of severance. Offering compensation upon involuntary layoffs displaces undue financial hardship for workers with the chance of them returning to your organization on a positive note if business returns as usual.

Protection from Potential Lawsuits

Severance pay is a way for employers to also protect against potential litigation and lawsuits. Since employees can sue an organization, it is generally a strategic approach to ensuring that severance pay is offered to prevent this possibility. Employers can further strengthen their positions by asking employees to sign a severance agreement and release all claims.

Flexible Terms and Conditions

Employers can offer severance pay as a lump sum or over several payments to the employee. These terms and conditions allow employers to offer to pay for former employees flexibly. You can also improve the package being offered by including benefits and unused vacation time pay.

Keeping Professional Relationships Intact

Not only does severance pay help employees bridge the gap, but it also helps retain professional relationships. Things can change quickly and at a moment’s notice, which means that an employer could end up calling laid-off employees back to work. By offering a generous severance package, they may be able to recuperate trained talent when business resumes as usual.

Can You Negotiate Severance Pay?

You can negotiate severance pay , even if the employer already has policies in place. However, the more specific the severance agreement is, the more challenging it is to negotiate since the employee agreed to the terms and conditions when signing. If the company does not have a written policy, it is all the more possible to renegotiate the amount of money and benefits you receive.

Consider the following steps when you negotiate severance pay:

  • Preserve evidence, including pay stubs, taxes, and employee awards that speak to the length of your employment and amount of money you made
  • Review the severance agreement with employment lawyers to help you understand if renegotiation or negotiation is possible
  • Point out areas in your employment contracts where an increase of benefits can be requested, including pay for unused personal time off (PTO)
  • Ask your human resources representative or department manager if they can increase the package
  • If you have a noncompete agreement in place, use it as leverage to the get the amount of compensation increased
  • For companies that are unwilling to provide more money, ask if you can receive a benefits extension, such as healthcare insurance
  • If the employer denies your request, accept their response unless you believe that your rights and freedoms have been violated
  • If you do negotiate a higher severance package, ensure that you get the new agreement in writing as soon as reasonably possible

Severance laws and pay vary from state-to-state. Look out for your legal rights and obligations, whether you are an employer or an employee. Always get clarification from employment lawyers when it comes to severance pay, packages, and agreements.

Is Severance Pay Taxable?

Severance pay is legally taxable income. Generally, both companies and workers alike pay a specific percentage on social security and Medicare taxes on employee salaries. These types of taxes are levied under the Federal Insurance Contributions Act (FICA) . As such, planning for severance pay taxes is essential for financial management.

However, severance packages are made after you have ceased working for the company. As such, some workers believe that the law does not require them to pay FICA when, in fact, it does.

When employees understand that severance pay is a taxable instrument, they can better plan when receiving payments. In numerous situations, employees might negotiate a severance package that includes the value of the tax bill, thereby effectively increasing the amount of money received.

The complexities surrounding severance pay leave employees and employers alike with questions about their specific situations. If you are an employer or employee that needs help with severance pay and severance agreements, post your project to ContractsCounsel and start receiving proposals as soon as today.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

ContractsCounsel verified
18 years practicing
Free Consultation

I am a New Jersey licensed attorney and I have been in practice for over seventeen years. My practice mainly consists of representing public entities (municipalities, school boards, etc) and businesses, both small and large. In that capacity, much of work consists of drafting, reviewing and revising contracts.

ContractsCounsel verified
Lead Attorney
9 years practicing
Free Consultation

Jennifer is an experienced business law attorney who has worked with many startups as well as established corporations. With a strong background in contract creation and review, she will be able to ensure you and your business interests are always protected.

ContractsCounsel verified
21 years practicing
Free Consultation

I am a corporate lawyer with expertise working with small businesses, venture capital and healthcare. Previously, I worked at large law firms, as well as head attorney for companies. I graduated from Harvard College and University of Pennsylvania Law School. I speak 5 languages (Spanish, French, Italian and Russian, plus English), visited over 60 countries, and used to compete in salsa dancing!

ContractsCounsel verified
Founder, Branch Legal LLC
9 years practicing
Free Consultation

Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.

ContractsCounsel verified
3 years practicing
Free Consultation

I am a licensed attorney and a member of the California Bar. I graduated from the University of Dayton School of Law's Program in Law and Technology. I love IP, tech transfers, licensing, and how the internet and developing technology is changing the legal landscape. I've interned at both corporations and boutique firms, and I've taken extensive specialized classes in intellectual property and technology law.

ContractsCounsel verified
25 years practicing
Free Consultation

Jo Ann has been practicing for over 20 years, working primarily with high growth companies from inception through exit and all points in between. She is skilled in Mergers & Acquisitions, Contractual Agreements (including founders agreements, voting agreements, licensing agreements, terms of service, privacy policies, stockholder agreements, operating agreements, equity incentive plans, employment agreements, vendor agreements and other commercial agreements), Corporate Governance and Due Diligence.

ContractsCounsel verified
Attorney and Contract Guru
16 years practicing
Free Consultation

I am an unabashed contract law geek with a passion for delivering contracts that protect your business within your risk tolerance. Contracts should be clear, concise, and able to be understood by the end user. I promote Plain English contract drafting. I also pay close attention to the boilerplate traps that trip up many agreements. Some of my most frequent drafting projects are entity operating and shareholder agreements, bylaws, asset purchase agreements, commercial leases, EULA, Terms of Service, Privacy Policies, Confidentiality agreements, employment agreements, and more.

ContractsCounsel verified
Self-Employed Legal Consultant
7 years practicing
Free Consultation

I hold a B.S. in Accounting and a B.A. in Philosophy from Virginia Tech (2009). I received my J.D. from the University of Virginia School of Law in 2012. I am an associate member of the Virginia Bar and an active member of the DC bar. Currently, I am working as a self-employed legal consultant and attorney. Primarily my clients are start-up companies for which I perform various types of legal work, including negotiating and drafting settlement, preparing operating agreements and partnership agreements, assisting in moving companies to incorporate in new states and setting up companies to become registered in a state, assisting with employment matters, drafting non-disclosure agreements, assisting with private placement offerings, and researching issues on intellectual property, local regulations, privacy laws, corporate governance, and many other facets of the law, as the need arises. I have previously practiced as an attorney at a small DC securities law firm and worked at Deloitte Financial Advisory Services LLC. My work experience is dynamic and includes many short-term and long term experience that span across areas such as maintaining my own blog, freelance writing, and dog walking. My diverse background has provided me with a stong skill set that can be easily adapted for new areas of work and indicates my ability to quickly learn for a wide array of clients.

ContractsCounsel verified
Attorney at law
20 years practicing
Free Consultation

Texas licensed attorney specializing for 20 years in Business and Contract law. My services include General Business Law Advisement; Contract Review and Drafting; Legal Research and Writing, including Motion Practice; Business Formation; Article or Instructive Writing; and more. For more insight into my skills and experience, please feel free to visit my LinkedIn profile or contact me with any questions.

ContractsCounsel verified
Partner / Attorney at Law
13 years practicing
Free Consultation

Creative, results driven business & technology executive with 24 years of experience (13+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. My engagements often include legal consultation & advisory roles, drafting of NDAs, TOS & Privacy Policies, contracts and corporate law, business strategy advice & consulting, in-house counsel, Founder & entrepreneur guidance and other roles as needed by my clients. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

ContractsCounsel verified
Managing Partner
23 years practicing
Free Consultation

Seasoned technology lawyer with 22+ years of experience working with the hottest start-ups through IPO and Fortune 50. My focus is primarily technology transactions with an emphasis on SaaS and Privacy, but I also provide GC services for more active clients.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call