Severance pay: typical amounts and negotiable terms

The meeting was short, and the packet is long. There's a number on the first page, a release of claims a few pages in, and a date by which you're supposed to sign. After twenty or thirty years of work, it's hard to tell whether the number is fair, what you'd be giving up, and whether asking for more is even allowed. If you feel numb, or angry, or oddly calm, that's a normal reaction to a sudden ending, and none of it needs sorting out before you read the packet.

I'm John Schrup. At FirstSourceTeam we've coached people through layoffs since 2006, and the first thing we tell anyone holding a severance packet is that asking is usually allowed, and that for anyone 40 or older, federal law sets a minimum on how long you get to decide. The sections below cover the formulas employers use, the terms you can ask to change, what the release does and how long you have to decide, and where taxes and unemployment benefits fit. An employment lawyer should read your specific agreement before you sign it. This guide is there to help you ask better questions, of the lawyer and of your employer.

Typical severance formulas and amounts

No federal law requires severance. The US Department of Labor says plainly that the Fair Labor Standards Act has no severance requirement and that severance "is a matter of agreement between an employer and an employee." That cuts both ways. Nothing guarantees you a package, and nothing caps what you can agree to.

Most employers tie the amount to years of service. In ASE's 2024 Severance Pay, Policies, & Practices Survey, 76% of employers used years of service as a basis, 38% used salary and 32% used position. One week of pay per year of service was the most common formula, at 57%, and two weeks per year came next, at 24%.

Note: 125 organizations from across Michigan; 39% with 100 or fewer employees, 40% with 101 to 499, 21% over 500; 45.6% durable goods manufacturing. Employers could cite more than one basis, so basis shares sum to more than 100.

Exhibit 1. Source: ASE, 2024 Severance Pay, Policies, & Practices Survey, press release of February 14, 2024 (highlights)

Treat those shares as a yardstick, not a national rate. ASE is an employer association in Michigan, the survey covered 125 organizations from across the state, and durable goods manufacturers made up 45.6% of the sample. It also found that only 22% of employers had formal severance plans and 42% had no formal or written policy at all, so many packages are set case by case, which is the opening for a negotiation.

When clients bring us an offer, we start by writing their years of service next to the weeks offered. It takes a minute, and it tells you whether you're arguing about a formula or about a judgment call.

The federal government publishes its own formula for its employees, and it's a useful public benchmark because it adds credit for age. The US Office of Personnel Management pays one week of basic pay for each year of service up to 10 years and two weeks for each year after that, then adds 2.5% for each full three months of age over 40, with a lifetime cap of 52 weeks.

Step	Calculation	Amount
First 10 years of service	10 years x 1 week x $1,500	$15,000.00
Service beyond 10 years	10 years x 2 weeks x $1,500	$30,000.00
Partial year (4 months = 1 full quarter-year)	1 x 25% x 2 weeks x $1,500	$750.00
Basic allowance	Sum of the above	$45,750.00
Age adjustment (age 45 years 8 months = 22 quarter-years over 40)	22 x 2.5% x $45,750	$25,162.50
Total severance pay fund	Basic allowance plus age adjustment (47.275 weeks)	$70,912.50

Note: OPM example: basic pay $1,500 a week, 20 years 4 months of creditable service, age 45 years 8 months. Lifetime limit of 52 weeks of severance pay. Applies to federal employees only; shown as a public benchmark.

Exhibit 2. Source: US Office of Personnel Management, Fact Sheet: Severance Pay (Computation of Severance Pay Fund; Example)

One more number belongs in your head before you respond. Under the federal WARN Act, an employer with 100 or more employees has to give 60 days' written notice before a plant closing or mass layoff. An employer that doesn't is liable for back pay for each day of the violation, up to 60 days. Whether your layoff counts depends on the headcount at your site, but if the company is large and you got no notice, ask a lawyer about it before you sign anything.

Negotiable severance terms beyond pay

Cash is the obvious ask, and the strongest argument for more is usually the formula itself: years of service the offer didn't count, a recent promotion that should set the pay rate, or a bonus you'd earned that isn't in the number.

The terms around the cash can matter as much.

Health coverage is the largest, and the COBRA notice is the letter many people dread. If your employer has 20 or more employees, federal COBRA law lets you keep its group plan for 18 months after a job loss, but lets the plan charge up to 102% of the full premium. Smaller employers fall outside the federal law. KFF's 2025 Employer Health Benefits Survey puts the average annual premium at $9,325 for single coverage and $26,993 for family coverage, and the average worker contribution at $1,440 and $6,850. Moving from the employee share to the full COBRA price is the jump people feel in their first month off payroll.

Average worker contribution while employedCOBRA charge at 102% of average premium

Note: COBRA column computed as 102% of KFF's average premium. Your plan's premium may be higher or lower; the COBRA election notice states the actual amount.

Exhibit 3. Source: KFF, Employer Health Benefits Survey 2025, Summary of Findings (average annual premiums $9,325 single and $26,993 family; average worker contributions $1,440 and $6,850); COBRA premium limit of 102% from 29 U.S.C. 1162(3)

We push clients to price their health coverage before they argue about weeks of pay. For a family, a year of COBRA can cost more than several weeks of salary. Asking the employer to pay your COBRA premium for six or twelve months puts a clear dollar figure on the request, and it's a figure the employer can check against its own plan costs.

Other terms to ask about:

• the payment schedule, lump sum or salary continuation, and the dates
• a prorated bonus for the year you're leaving
• treatment of unvested stock or options, which is set by the equity plan and sometimes changed by the agreement
• the departure date, which can move benefits eligibility or vesting dates
• an agreed reference, or a mutual non-disparagement clause
• the wording of the internal and external announcement
• outplacement or career transition support

On that last item, mind the tax rule. IRS Publication 525 says that if you accept less severance so the employer can pay for outplacement instead, you're still taxed on the unreduced amount.

Severance offer letter

Letterhead

Northfield Components, Inc., Human Resources

Date

October 12, 2026

Employee

Director, Supply Chain; 18 years of service; age 57

Separation date

October 30, 2026

1Severance pay

18 weeks of base salary, paid as salary continuation on regular pay dates

2Annual bonus

Not eligible for a 2026 bonus

3Health coverage

Coverage ends October 31, 2026; COBRA election notice to follow

4Equity

Unvested restricted stock units are forfeited on the separation date

Release of claims

General release of all claims, including claims under the Age Discrimination in Employment Act

5Restrictive covenants

12-month non-competition and non-solicitation obligations

6Consideration and revocation

You have 21 days to consider this agreement and 7 days after signing to revoke it

Advice of counsel

You are advised to consult an attorney before signing

1. 1Check the weeks against your years of service, and ask for the payment dates in writing. The schedule changes your taxes and, in some states, your unemployment benefits.
2. 2A prorated bonus for the months worked is a reasonable ask.
3. 3Ask the employer to pay COBRA premiums for a set number of months.
4. 4Ask whether any units can vest or the forfeiture date can move.
5. 5A new non-compete may be void under state law, such as Minnesota's for agreements since July 1, 2023.
6. 6The 7-day revocation period cannot be shortened. In a group layoff the review period is 45 days.

The release of claims and review periods

Signing a release can feel like agreeing that the layoff was fair. Legally, it's a trade: the money comes in exchange for giving up the right to sue the employer over the job and its ending. For workers 40 and older, the Age Discrimination in Employment Act protects against age bias, and the Older Workers Benefit Protection Act, written into that law, sets rules for a valid waiver of age claims.

Requirement	Individual separation	Group layoff or exit program
Written so the employee (or average eligible employee) can understand it	Yes	Yes
Refers specifically to age discrimination rights or claims	Yes	Yes
No waiver of claims arising after signing	Yes	Yes
Pays something beyond what the employee is already entitled to	Yes	Yes
Advises the employee in writing to consult an attorney	Yes	Yes
Time to consider before signing	At least 21 days	At least 45 days
Time to revoke after signing	At least 7 days, cannot be shortened	At least 7 days, cannot be shortened
Written list of job titles and ages of those eligible or selected, and ages of those in the same job group not selected	No	Yes

Note: Material changes to the final offer restart the 21- or 45-day period unless the parties agree otherwise (29 CFR 1625.22(e)(4)).

Exhibit 4. Source: 29 U.S.C. 626(f)(1)(A) to (H) (Older Workers Benefit Protection Act amendments to the Age Discrimination in Employment Act); 29 CFR 1625.22(e)(4) and (5); age 40 threshold from 29 U.S.C. 631(a)

The timing rules are the ones to use, and we tell clients to use all of them. Taking the days the law gives you is ordinary, and an employer that wants a valid release has to allow them. You get at least 21 days to consider an individual agreement, or 45 days when the release is part of a program offered to a group. After you sign, you have at least 7 days to revoke, and the agreement doesn't take effect until those 7 days pass. The regulation from the Equal Employment Opportunity Commission (EEOC), the federal agency that handles job discrimination complaints, adds two details. Material changes to the final offer restart the 21- or 45-day clock unless both sides agree otherwise, and you can sign early only if that choice isn't pushed by a threat to withdraw or change the offer.

In a group layoff, the employer also has to tell you, in writing, which group the program covers and the job titles and ages of the people selected or eligible, and the ages of those in the same job group who were not selected. That list is one of the few windows you'll get into how the layoff was decided. A lawyer can tell you whether it shows a pattern worth raising.

Read the restrictive covenants with the same care. A federal rule banning most non-competes never took effect: a court set it aside, and on September 5, 2025, the Federal Trade Commission voted 3-1 to drop its appeals and accept that result. State law decides instead. In Minnesota, a covenant not to compete in an employment agreement is void for agreements entered into on or after July 1, 2023, though nondisclosure and non-solicitation agreements are still allowed. A severance agreement that adds a new non-compete in a state like that is worth pointing out.

Severance taxes and unemployment benefits

Severance is taxed as wages. IRS Publication 15 gives employers the option of withholding a flat 22% of federal income tax on it, which can fall short of what you owe if the severance pushes you into a higher bracket. The payment dates you agree to decide which tax year it lands in. Taxes on severance pay: withholding, brackets and timing works through the numbers.

Unemployment benefits depend on your state. Some ignore severance, some reduce benefits, and some pay nothing for the weeks severance covers. Texas draws a line worth knowing while you're still negotiating: the Texas Workforce Commission says severance "unilaterally offered" in a policy or offer letter would generally be disqualifying, "while a negotiated severance payment would likely not affect benefit eligibility." The state-by-state rules are in Unemployment benefits and severance pay, state by state.

Write down what you want changed, with the reason for each item, and send it before the consideration period runs out. Put the employer's answers in the final agreement, not in an email.

Working with FirstSourceTeam

When someone comes to FirstSourceTeam with a severance offer, we start with the letter and a calendar: the signing deadline, the date health coverage ends, and the last regular paycheck. From there we help you think through the money side, severance terms, benefits and retirement timing, so you go to your lawyer and your employer with a clear list. Then the search itself: one-to-one coaching, a rebuilt resume and LinkedIn profile, interview preparation and introductions to recruiters. We're a family-owned firm in Minneapolis and have coached job seekers since 2006. If you'd like to hear how we work first, our free one-hour webinar runs every Wednesday at 11 AM Central with John Schrup and Misty Schnuelle.

Sources

1. US Department of Labor, Severance Pay, accessed Oct 12, 2026.
2. ASE, ASE Releases Results to the 2024 Severance Pay, Policies, & Practices Survey, accessed Oct 12, 2026.
3. US Office of Personnel Management, Fact Sheet: Severance Pay, accessed Oct 12, 2026.
4. US Code (text via Cornell Legal Information Institute), 29 U.S. Code 2101, 2102 and 2104 (Worker Adjustment and Retraining Notification Act), accessed Oct 12, 2026.
5. US Code (text via Cornell Legal Information Institute), 29 U.S. Code 1162, Continuation coverage, accessed Oct 12, 2026.
6. KFF, Employer Health Benefits Survey 2025, Summary of Findings, accessed Oct 12, 2026.
7. Internal Revenue Service, Publication 525 (2025), Taxable and Nontaxable Income, accessed Oct 12, 2026.
8. US Code (text via Cornell Legal Information Institute), 29 U.S. Code 631, Age limits, accessed Oct 12, 2026.
9. US Code (text via Cornell Legal Information Institute), 29 U.S. Code 626(f), Waiver (Older Workers Benefit Protection Act), accessed Oct 12, 2026.
10. US Equal Employment Opportunity Commission regulations (text via Cornell Legal Information Institute), 29 CFR 1625.22, Waivers of rights and claims under the Age Discrimination in Employment Act, accessed Oct 12, 2026.
11. Minnesota Office of the Revisor of Statutes, Minnesota Statutes, section 181.988, Covenants not to compete void in employment agreements, accessed Oct 12, 2026.
12. Minnesota Office of the Revisor of Statutes, Laws of Minnesota 2023, chapter 53, article 6, section 1 (effective date), accessed Oct 12, 2026.
13. Federal Trade Commission, Federal Trade Commission Files to Accede to Vacatur of Non-Compete Clause Rule, accessed Oct 12, 2026.
14. Internal Revenue Service, Publication 15 (2026), (Circular E), Employer's Tax Guide, accessed Oct 12, 2026.
15. Texas Workforce Commission, Final Pay: Severance Benefits (Especially for Texas Employers), accessed Oct 12, 2026.