How is severance pay usually calculated?
There is no federal law requiring severance in the US — it is a contractual or company-policy benefit. The most common formulas are: (a) one to two weeks of pay per year of service for rank-and-file employees, and (b) one month of pay per year of service for executives. Many employers add a minimum severance floor (for example, four weeks even for short tenures) and may offer a multiplier on top during mass layoffs.
What should I do with severance pay?
Build an emergency runway first. A common rule of thumb is 3–6 months of essential expenses in cash. After that, consider maxing an IRA, paying down high-interest debt, or keeping it liquid while you search for your next role. Severance is generally taxable as ordinary income, so plan for the tax hit — many states withhold automatically, but you may owe more at filing time.
Do I have to accept the severance my employer offers?
No. You can negotiate — common asks are more weeks, continued health benefits (COBRA subsidy), accelerated stock vesting, a positive reference letter, or an extended departure date. Consider hiring an employment attorney to review a severance agreement, especially if you are 40+ and the package includes an Age Discrimination in Employment Act release.
Is this calculator accurate?
The estimate uses the formula you choose with your inputs. Actual offers vary by industry, region, employer size, and the reason for separation. Always verify with HR or a labor attorney before signing a separation agreement.