Every question you have about severance answered

The dreaded moment when you’re handed a pink slip at your job can be devastating. Especially when it’s unexpected, you’ll likely have questions about severance pay. Every question you have about severance, answered here, will help you get through the shock and frustration that comes when you’re laid off

While every company will handle severance differently, receiving some sort of severance package upon termination is a common practice. But, just because it’s common doesn’t mean you won’t have questions about how the process works once you’re in the thick of it. To help guide you through, here’s what you can expect when dealing with severance.

What is severance?

Simply put, severance is monetary compensation that an employee receives from a company when their employment is terminated by their employer. Severance packages can also include continued health benefits coverage for terminated employees.

Employers will typically let the terminated employee know details of their severance package upon dismissal from the company. 

Why do companies offer severance pay?

Severance packages ensure a smooth transition for both the employee and employer upon termination of employment. Because a layoff or termination can be abrupt, it’s nearly impossible for employees to plan ahead and have another job lined up and ready to go. 

Severance pay provides the opportunity for employees to continue to receive some compensation, and potentially the continuation of some benefits such as healthcare while searching for a new position

Who receives severance pay?

According to the United States Department of Labor, there is no federal mandate that requires employers to offer severance packages. “Severance pay is a matter of agreement between an employer and an employee,” their website states. 

Under the Fair Labor Standards Act, which governs minimum wage, overtime pay, and other general employment standards for the general public, an employer is only obligated to pay an employee’s standard wages through their last day of work.

However, some employers are required by state laws to utilize severance pay in certain circumstances such as mass layoffs. Employees who are part of a union may also receive severance pay. If you signed an employment contract during hiring, that document will likely contain information about the circumstances under which employees are eligible to receive severance pay.

How much severance pay should I expect to receive?

Again, this will vary greatly from employer to employer. Just as severance pay is not required under U.S. law, the amount of severance payments to terminated employees is also not governed by any general entity. 

If you have one, refer to your employment contract, which should outline specifics about severance packages and eligibility. If your contract does not specifically cover severance amounts, this should be something your employer covers upon dismissal, usually in writing. 

How is severance pay calculated?

The amount of severance pay a terminated employee is to receive will vary based on what their particular employer deems appropriate. Often, severance package amounts are based on the length of time served at the company and an employee’s pay rate

For example, upon termination, you may receive severance equal to one week’s pay for every year that you worked for the company. If terms of severance pay calculation are spelled out in your employment contract or employee handbook, that will be what your employer is obligated to follow through with.

How long will I receive severance pay?

Severance packages can be paid out in either one lump sum payment or over the course of several weeks or months. These terms may be included in your employment contract, but ultimately it is up to your individual employer to determine how long you will receive severance pay. 

If you’re offered the option to receive severance pay in one lump sum versus a longer payout, it is worth looking into taking the lump sum offer if you plan to collect unemployment at any point after being let go. In some cases, receiving severance payouts can interfere with your ability to receive unemployment benefits, but the terms of unemployment eligibility will vary from state to state. 

What happens when I accept severance?

In some cases, employers will require that terminated employees sign paperwork stating the terms of severance upon acceptance of their severance package. Generally, these forms provide an agreement that the former employee will not speak unkindly about their previous employer. 

The agreement could also include information regarding non-compete clauses and statements agreeing not to seek legal action for termination

Can I negotiate severance?

Whether or not you can negotiate severance will depend highly on the terms of your employment and the circumstances surrounding of you being let go. If you are part of a mass layoff or signed an employment contract that clearly states severance terms, you’re less likely to be able to negotiate.

However, you do have some room to negotiate if severance isn’t already outlined in your employee contract or handbook. Talking to your employer to negotiate the amount of compensation you are to receive, how long your payout will last, and what additional benefits you may receive could yield positive results. 

Should I ask about severance pay before taking a new job?

Knowing upfront what will happen if you’re fired from a job before you decide to take on a new role is a reasonable expectation. Because such occurrences are highly unexpected, being prepared as best you can before a layoff or termination is even on the table can be helpful.

Asking what an employer’s guidelines for severance pay are during the interview process can help you be prepared in case anything unfortunate happens once you’re hired. Additionally, you can ask for severance guidelines to be added to your employment contract upon being hired.