Severance Pay

How Severance Pay Is Calculated

Severance is your years of service times your employer’s own weeks-per-year formula, times your weekly pay. There’s no universal formula — always check your own employment contract or your employer’s written severance policy for the weeks-per-year figure. This is the number to know before negotiating a package or deciding whether to accept an offer as written.

Key Factors to Consider

The formula above is a simple multiplication, but a real severance situation usually has more moving parts than the base number alone:

• Most U.S. states have no legal minimum severance requirement. Unlike overtime or minimum wage, severance pay is generally a discretionary benefit or a matter of company policy/contract, not something the law guarantees outside specific circumstances (e.g. mass layoffs covered by the WARN Act). “Weeks per year” varies enormously between employers — this calculator only works with the figure you already know.
• A severance offer often includes more than the base formula. Accrued but unused PTO payout, COBRA health insurance subsidies, pro-rated bonus or commission, and outplacement services are commonly negotiated or offered separately, and aren’t captured by this calculator’s simple weeks-times-pay math.
• Severance offers aren’t always final. Especially with longer tenure, a specialized role, or a documented performance record, employers are sometimes willing to negotiate the terms before you sign — it’s worth asking rather than assuming the first number is fixed.
• Some policies cap total severance at a maximum number of weeks regardless of years of service, particularly for very long-tenured employees. Check your employer’s actual written policy for a cap that this formula alone wouldn’t show.

Interpreting Your Results

The total shown here is your gross severance — before any tax withholding.

• This is a planning estimate, not a guarantee. The weeks-per-year figure a company actually applies often isn’t documented anywhere public until you’re going through the process yourself — confirm the real number against your actual severance agreement or offer letter once you receive one.
• Accepting severance commonly requires signing a release of legal claims against your employer. Read any agreement carefully (or have an employment attorney review it) before signing, especially for a larger severance amount.

Useful to Know

Severance is often withheld differently than a regular paycheck. Many employers pay severance as a lump sum processed as a “supplemental wage” for tax purposes, which the IRS allows employers to withhold federal income tax on at a flat rate — 22% for most amounts, or 37% on any supplemental wages paid to one employee that exceed $1 million in a calendar year — rather than using your normal paycheck’s withholding formula. That means the amount that actually lands in your bank account can differ meaningfully from what you’d expect based on your usual take-home percentage. Either way, this withholding is only an estimate collected up front — your real tax liability on the severance is settled when you file your tax return, not by what’s withheld at payout.

The Formula

$$\vA{\text{Total Weeks}} = \text{Years of Service} \times \text{Weeks per Year}$$ $$\vB{\text{Total Severance}} = \vA{\text{Total Weeks}} \times \text{Weekly Pay}$$

Worked Example

5 years of service at 2 weeks/year, with $1,000 weekly pay:

1. Total weeks: $\vA{5 \times 2 = 10}$
2. Total severance: $\vA{10} \times 1,000 = \vB{10,000}$