How is severance pay calculated?
There is no federal law requiring severance pay in the United States. The Fair Labor Standards Act (FLSA) does not mandate it. Severance is entirely a matter of agreement between you and your employer — in your employment contract, a company policy, or a negotiated separation agreement.
The most common formula used by U.S. employers is 1–2 weeks of pay per year of service, with a cap of 26–52 weeks. Senior employees and executives typically receive higher multipliers (2–4 weeks per year). Large enterprise companies tend to be meaningfully more generous than small businesses.
Industry benchmarks: weeks per year of service
Technology / Software
2–4 wks/yr · cap 52 wks
Large tech cos (FAANG-tier) routinely offer 2–4 wks/yr plus equity acceleration. Startups vary widely.
Finance / Banking / Insurance
2–4 wks/yr · cap 52 wks
Wall Street firms often pair severance with garden leave. Investment banks commonly offer 2–3 wks/yr.
Healthcare / Pharma / Biotech
1.5–3 wks/yr · cap 39 wks
Hospitals and health systems typically 1–2 wks/yr. Pharma/biotech closer to tech norms.
Manufacturing / Industrial
1–3 wks/yr · cap 26 wks
Union contracts often define formulas. Non-union plants average 1 wk/yr, frequently capped at 26 wks.
Retail / Consumer Goods
1–2 wks/yr · cap 26 wks
Hourly workers rarely receive severance. Corporate staff typically 1 wk/yr capped at 26 wks.
Consulting / Professional Services
2–4 wks/yr · cap 52 wks
Big 4 / MBB-tier firms often 2 wks/yr. Smaller firms vary.
Media / Entertainment / Advertising
1.5–3 wks/yr · cap 26 wks
Traditional media leans toward 1–2 wks/yr. Streaming/digital closer to tech.
Government / Non-Profit / Education
1–2 wks/yr · cap 26 wks
Public sector rarely offers discretionary severance. Many rely on RIF (reduction-in-force) formulas or accrued leave payouts.
Should I negotiate my severance?
Yes — almost always. Employers routinely offer packages below the market median, particularly for individual contributors who do not have employment attorneys involved. You can negotiate: more weeks of pay, extended health insurance coverage, outplacement services, accelerated equity vesting, a positive written reference, and the specific wording of your separation agreement.
The best leverage is knowing what your profile should receive. Use the calculator above to get a market benchmark, then ask for the 75th percentile number as your opening position.
Can I collect unemployment while receiving severance?
It depends on your state and how the severance is structured. If paid as a lump sum, most states allow you to file for unemployment immediately. If paid as salary continuation (regular weekly checks), most states will delay your unemployment benefits until payments end. File your claim on your first eligible day regardless — delays cost you money.
How long does COBRA coverage last?
COBRA continuation coverage lasts up to 18 months after leaving your employer. You pay the full premium — both the employee and employer share — plus a 2% administrative fee. In 2024, average COBRA costs are approximately $761/month for single coverage and $2,174/month for family coverage (Kaiser Family Foundation). If you find a new job quickly, switching to your new employer's plan at enrollment is usually more cost-effective.
Frequently asked questions
How much severance do I get for 5 years of service?+−
For 5 years at a mid-size company, typical severance is 5–10 weeks of pay. In tech and finance, 10–15 weeks is common. At the executive level, 15–20 weeks is typical. Use the calculator above for a personalized estimate.
What should I do first when I get laid off?+−
1) File for unemployment in your state immediately — delays cost you money. 2) Review your severance offer against market benchmarks before signing. 3) Calculate your COBRA options and compare with marketplace insurance. 4) Understand your equity vesting cliff date before your last day.
Do small companies have to pay severance?+−
No U.S. employer — regardless of size — is federally required to pay severance. However, if you signed an employment contract or offer letter that references a severance policy, that creates a legal obligation. Always review your employment documents.
Is severance pay taxable?+−
Yes. Severance is ordinary income, subject to federal and state income tax, and payroll taxes (FICA). Your employer typically withholds at the supplemental wage rate (22% federal). You may owe more or less at tax time depending on your total income for the year.
Unemployment benefits by state
Each state runs its own unemployment insurance program with different weekly maximums, durations, and eligibility rules.