The total cost of a reduction in force, per person and in total

How much does a layoff cost per employee?

Add six lines: severance, pay in lieu of any notice you owe, accrued vacation your state requires you to pay out, employer payroll taxes on those payments, any COBRA premiums you cover, and outplacement. Then add the rise in your state unemployment tax rate over the next few years. For 25 people averaging $95,000 and 6 years of service, with 2 weeks of severance per year of service, 3 months of COBRA and 6 days of vacation payout, the total is about $28,000 per person, $700,000 in all, before outplacement.

The worked example, line by line

Line	Per person	25 people
Severance (12 weeks)	$21,923	$548,077
Pay in lieu of notice	$0	$0
Vacation payout (6 days)	$2,192	$54,808
Employer payroll taxes (7.65%)	$1,845	$46,121
COBRA subsidy (3 months × $678)	$2,034	$50,850
Outplacement (enter your quote)	$0	$0
Total	$27,994	$699,855

Exhibit 1. Source: FST calculation. Severance formula: 2 weeks per year of service, 4-week minimum, 26-week maximum (example inputs, not a benchmark). COBRA: KFF 2026 Employer Health Benefits Survey, average employer share of single coverage.

The formulas, so you can check any line:

• Severance = salary ÷ 52 × weeks. Weeks = years of service × weeks per year, raised to the minimum and capped at the maximum. Here, 6 × 2 = 12 weeks.
• Pay in lieu of notice = salary ÷ 260 × working days owed. Zero here; see WARN notice for when it isn't.
• Vacation payout = salary ÷ 260 × unused days.
• Employer payroll taxes = 7.65% (Social Security 6.2% plus Medicare 1.45%) of the three payments above. Less for anyone already past the year's Social Security wage base.
• COBRA subsidy = months × the monthly premium the company pays. $678 is the average employer share of single coverage in KFF's 2026 survey: $9,804 premium minus the $1,672 worker contribution, ÷ 12.
• Outplacement = price per person × people. Left at zero here; enter your quote.

Total cost of a reduction in force

People affected

Average annual salary

$

Average years of service

Severance weeks per year of service

Minimum weeks

Maximum weeks

0 = no capMonths of COBRA the company pays

Company-paid COBRA premium per month

$

Unused PTO days paid out, average

Pay in lieu of notice, working days

For example, days short of a WARN notice periodOutplacement per person

$

Added state unemployment tax, total

$

Your state's rate notice, all affected years

Severance

$21,923 each · $548,077

Pay in lieu of notice

$0 each · $0

PTO payout

$2,192 each · $54,808

Employer payroll taxes on those payments

$1,845 each · $46,121

COBRA premium subsidy

$2,034 each · $50,850

Outplacement

$0 each · $0

Per person

$27,994

Total for 25 people

$699,855

Severance uses the group's average tenure, so the minimum and maximum apply to the average. Summing each person's severance can give a different total. Assumes 52 paid weeks and 260 working days a year.

Educational estimate, not legal advice. Nothing you enter leaves this page.

Severance: the biggest line, and the one you set

No federal law requires severance, but most employers pay it: 92% of organizations do in LHH's 2027 benchmark study (published October 2026) of 600 US leaders. Formulas vary. In the same study, 40% weigh age, service, level and the ability to find new work; 28% use position level and years of service; 23% give flat weeks by level. 52% set a minimum, from 4 weeks for non-exempt staff to 6 for a CEO, and 29% set a maximum, from 7.5 weeks to 24.2.

The weeks-per-year figure drives the total more than anything else. On the example, moving from 2 to 1 week per year of service cuts severance from $21,923 to $10,962 per person. Set it once, by level, before anyone is selected, and apply it the same way to everyone.

New Jersey is the exception: its WARN law requires one week of pay per full year of service in a covered mass layoff, and four more weeks if the 90-day notice is short.

Accrued vacation: which states require a payout

State	Rule	Law
California	All earned, unused vacation, at the final rate; due immediately on a layoff	Labor Code 227.3, 201
Colorado	Earned vacation can't be forfeited; paid at separation	C.R.S. 8-4-101(14)(a)(III); Nieto v. Clark's Market (2021)
Illinois	All earned vacation, as part of final compensation	820 ILCS 115/5
Louisiana	Accrued, unused vacation under the employer's policy	La. R.S. 23:631(D)
Maine	Employers with 11+ employees, vacation accrued from Jan 1, 2023	26 M.R.S. 626
Massachusetts	Earned vacation is wages; due on the last day for an involuntary termination	M.G.L. c.149 §148
Montana	Earned vacation is wages; use-it-or-lose-it not allowed	MCA 39-3-205
Nebraska	Earned, unused vacation (and all-purpose PTO) is owed	Neb. Rev. Stat. 48-1229
North Dakota	Unused PTO is wages, with narrow exceptions	N.D.C.C. 34-14-09.2
Rhode Island	After one year of service, accrued vacation is wages	R.I. Gen. Laws 28-14-4(b)

Note: Other states generally follow the employer's written policy.

Exhibit 2. Source: State statutes and labor department guidance, checked 2026-10-30. Conditions and timing vary; confirm with counsel for each state.

In other states, payout usually follows your written policy. Check each state where affected people work, not just headquarters, and check final-pay timing: California wants final wages, vacation included, immediately on a layoff, with a penalty of up to 30 days' wages for late payment.

COBRA: what the law requires and what employers choose to pay

COBRA applies to employers with 20 or more employees. A laid-off employee can keep the group plan for 18 months at up to 102% of the premium, and has 60 days to elect it. Paying part of the premium is a choice, not a requirement. In LHH's 2027 study, 12% of organizations continue medical coverage for the whole severance period, down from 52% in 2024.

At KFF's 2026 averages, COBRA costs a former employee about $833 a month for single coverage and $2,406 for family coverage. That gap between what they paid as an employee and the full price is what most people notice first. For the employee side, see COBRA or Marketplace after a layoff.

The cost that arrives later: state unemployment tax

Unemployment benefits paid to people you lay off are charged to your state account, and that raises your experience-rated tax rate for the next few years. Texas shows the mechanism. Its 2026 general tax rate is your benefit ratio (benefits charged over three years ÷ taxable wages over the same three years) × 1.20, and total rates run from 0.32% to 6.32% on the first $9,000 of each employee's wages.

	Before	After
Benefits charged over 3 years	$0	$40,500
Benefit ratio (÷ $2.7M taxable wages)	0%	1.5%
General tax rate (× 1.20)	0%	1.80%
Total rate, including the 0.32% minimum	0.32%	2.12%
Tax per employee per year (× $9,000)	$28.80	$190.80

Exhibit 3. Source: Texas Workforce Commission, 2026 tax rates (formula, 1.20 replenishment ratio, 0.32%–6.32% range, $9,000 wage base). Charge amounts are illustrative.

Other states use a reserve-ratio method instead, with a different formula but the same direction. Your state's annual rate notice gives the real figure; enter it in the calculator as the total over the years it applies.

What this total leaves out

Recruiting to backfill roles later, lost productivity among the people who stay, and legal fees if the reduction is challenged. These are real, but they're estimates, not formulas, so they aren't in the calculator. Count outplacement as part of the last one: a release signed with support in place is less likely to be challenged. See the case for outplacement.

Sources

1. Internal Revenue Service, Publication 15 (2026), Employer's Tax Guide, accessed Oct 30, 2026.
2. KFF, 2026 Employer Health Benefits Survey, accessed Oct 30, 2026.
3. Legal Information Institute, Cornell Law School, 29 U.S.C. 1161–1162, COBRA continuation coverage, accessed Oct 30, 2026.
4. LHH, 2027 Severance and Separation Benefits Benchmark Study: how much severance should companies pay, accessed Oct 30, 2026.
5. California Department of Industrial Relations, Vacation, Frequently Asked Questions (Labor Code 227.3), accessed Oct 30, 2026.
6. State of Rhode Island General Assembly, R.I. Gen. Laws 28-14-4, Payment of wages to employees leaving service, accessed Oct 30, 2026.
7. Illinois General Assembly, 820 ILCS 115/5, Illinois Wage Payment and Collection Act, accessed Oct 30, 2026.
8. Texas Workforce Commission, Your Tax Rates (2026), accessed Oct 30, 2026.