Severance Pay Calculator

What is Severance Pay?

Severance pay is compensation provided to employees upon termination of employment, typically during layoffs, position eliminations, or mutual separation agreements. While not legally required in most U.S. states, many companies offer severance as a goodwill gesture and to protect against potential legal claims.

Standard Severance Formula

Base Severance = Weekly Salary × Weeks Per Year of Service × Years Employed

The most common severance formula is 1-2 weeks of pay for each year of service. For example, an employee earning $75,000 annually with 5 years of service at 2 weeks per year would receive: ($75,000 / 52) × 2 × 5 = $14,423.

What's Typically Included in Severance Packages

• Base severance pay: Calculated based on tenure and salary
• Unused PTO payout: Many states require payout of accrued vacation
• Prorated bonus: Portion of annual bonus earned before termination
• Healthcare continuation: Extended benefits or COBRA subsidy
• Outplacement services: Career coaching and job search assistance
• Stock vesting: Accelerated vesting or extended exercise periods

Severance Pay by Company Size

According to industry surveys, severance practices vary by company size:

• Small companies (under 100 employees): 1-2 weeks per year
• Mid-size companies: 2 weeks per year
• Large corporations: 2-4 weeks per year, often with minimums and caps
• Executive packages: Often negotiated individually, 6-24 months common

Legal Considerations

• WARN Act: Companies with 100+ employees must provide 60 days notice for mass layoffs or pay in lieu
• Release agreements: Employees over 40 must have 21 days to consider and 7 days to revoke (OWBPA)
• State laws: Some states have additional requirements for severance and PTO payout
• Non-compete clauses: Severance may be contingent on signing restrictive covenants

Tax Implications

Severance pay is considered taxable income by the IRS. Employers typically withhold federal and state income taxes, Social Security, and Medicare from severance payments. Depending on when severance is paid, it may be subject to supplemental wage tax rates.