Leaving a job · 2026 rules
Severance pay: when it is owed and how much to expect
Severance is a promise, not a statutory right. What you receive depends on your employer’s policy, your contract and, for large layoffs, federal notice rules.
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No federal law requires severance pay. The Department of Labor says the Fair Labor Standards Act contains no severance requirement and that severance is a matter of agreement between an employer and an employee, usually based on length of service. States generally do not require it for an ordinary termination either. You are owed severance only if a written policy, an employment contract, a union agreement or a separation agreement promises it. The common formula is one or two weeks of pay per year of service, often with a minimum and a cap: at $65,000 a year and 8 years of service, one week per year comes to $10,000 and two weeks to $20,000, before taxes. Separately, the federal WARN Act requires employers with 100 or more employees to give 60 calendar days of notice before a plant closing or mass layoff, and pay in place of that notice often appears in layoff packages. Most severance offers come with a release of legal claims, so read the agreement before signing.
Severance under your employer formula
Severance before taxes
$13,846
| Weeks of pay | 12.0 |
| Weekly pay | $1,154 |
| If the policy pays 1 week a year | $6,923 |
Severance is paid only if a contract, policy or agreement promises it. It is taxed as wages.
Where a right to severance comes from
Because the Department of Labor treats severance as a matter of agreement, the first job is to find the document that creates it. Four sources are common. A written severance plan or policy, often in the benefits section of the handbook, promises a formula to employees who are laid off. An employment contract or offer letter, usually for managers, may promise a set number of months. A collective bargaining agreement can set severance for union members. And a separation agreement, offered at the time of the layoff, creates the payment in exchange for something from you. If none of these exists, the employer can lawfully pay nothing beyond your final wages.
A formal severance plan that the employer maintains for a group of employees can be an employee benefit plan under federal law. In that case the Employee Benefits Security Administration, which the Department of Labor points to, can help if promised benefits are not paid, and the plan must follow its written terms and claims procedure. A one-off payment negotiated with a single employee is a contract question instead.
How the usual formulas work
Most plans multiply a number of weeks of pay by years of service, then apply a floor and a ceiling. Partial years may be rounded, prorated or ignored, depending on the plan. Weekly pay normally means base salary divided by 52, without bonuses or overtime unless the plan says otherwise. The table applies common formulas to a salary of $65,000 and 8 years of service; the mini-simulator above runs any salary, tenure and weeks per year.
| Formula | Weeks of pay | Amount before taxes |
|---|---|---|
| 1 week per year of service | 8 | $10,000 |
| 2 weeks per year of service | 16 | $20,000 |
| 2 weeks per year, minimum 4, maximum 12 | 12 | $15,000 |
| 1 week per year, minimum 4 (after 1 year) | 4 | $5,000 |
| 60 days of pay in lieu of WARN notice | 8.6 | $10,714 |
Executives and senior staff often negotiate a fixed number of months instead, sometimes with continued health coverage paid by the employer and accelerated vesting of stock. Hourly employees in a broad layoff more commonly receive a flat number of weeks. Severance is paid either as a lump sum or as salary continuation on the regular payroll schedule, and the agreement says which.
The rounding rule for partial years can matter more than people expect. With 8 years and six months of service at two weeks per year, a plan that prorates pays 17 weeks, $21,250, while a plan that counts only completed years pays 16 weeks, $20,000. Ask for the plan document, not just the summary, and check the definition of pay and of a year of service before you compare an offer with what the policy promises.
The WARN Act: notice before large layoffs
The Worker Adjustment and Retraining Notification Act does not create severance, but it often shapes layoff packages. Under 20 CFR 639.1, covered employers must give 60 calendar days of advance notice of a plant closing or a mass layoff. The definitions in 20 CFR 639.3 set the thresholds: an employer is covered with 100 or more employees, not counting part-time staff, or 100 or more counting part-timers who together work at least 4,000 hours a week. A plant closing is a shutdown that causes employment losses for 50 or more full-time employees at one site within 30 days. A mass layoff is a reduction at one site within 30 days that hits at least 33 percent of active full-time employees and at least 50 people, or 500 or more people whatever the percentage.
An employer that orders a covered closing or layoff without the required notice is liable, under 29 U.S.C. 2104, for back pay and benefits for each day of the violation, up to 60 days. Employers planning a layoff therefore often pay wages through the notice period instead of keeping people at work, which is why many layoff packages include 60 days of pay labeled as WARN pay, separate from any severance formula. Several states have their own mini-WARN laws with lower thresholds or longer notice. If a large layoff left you without notice, the state dislocated worker unit and an employment lawyer can tell you whether the act applied.
Before you sign a separation agreement
Severance offered at the time of a layoff almost always comes with a release: you give up the right to sue the employer over the job and its end in exchange for the payment. Read what is released, whether the agreement includes a non-disparagement, confidentiality or non-compete clause, and whether you must return company property first. If you are 40 or older and the release covers age discrimination claims, the EEOC explains that the waiver must give you at least 21 days to consider the offer, 45 days in a group layoff, and seven days to revoke your signature after signing. No agreement can stop you from filing a charge with the EEOC or taking part in its investigation, and wages already earned are owed whatever you sign.
Severance does not replace your final wages. Earned pay and, in California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Montana, Nebraska, North Dakota and Rhode Island, accrued vacation are due under the state final paycheck rules whether or not you sign. An employer that holds your last paycheck until you accept a release is mixing two separate obligations, and the state labor agency can address the wage part.
Severance, unemployment and health coverage
Whether severance delays unemployment benefits depends on the state: some treat it as wages that postpone benefits for the weeks it covers, others ignore a lump sum paid for past service. File your claim promptly and report the payment as the state asks; the state agency decides. For health insurance, COBRA lets you continue the group health plan of an employer with 20 or more employees for a limited time, but you can be charged up to 102% of the full premium unless the agreement subsidizes it. Ask whether the employer will pay part of the premium, because that subsidy is one of the more common items to negotiate. Your state page links the labor agency for wage questions, and the at-will guide explains why most jobs can end without notice in the first place.