How to Ask For a Severance Package: The Complete Guide

A severance package is a form of compensation that a company offers to employees that it lays off. It can include money and other benefits, such as continuing insurance coverage, assistance in finding another job, the awarding of a pre-arranged performance bonus, and more. Its purpose is to ease the financial blow of job loss and acknowledge employees contributions to the company.

Most employers offer a severance agreement established by company policy that outlines the financial terms on which the employee will leave the company. Sometimes, employees can negotiate those terms. Regardless, they must sign the agreement to receive their severance package.

Your power to negotiate a severance package lies in the fact that companies dont want you to bad-mouth or sue them. Whats more, they may not want you to work for, or share their company secrets with their competitors.

Whether you are able to negotiate it or simply must accept whats offered, a severance package can ease your transition to a new job, relieve stress, and provide some financial cushion.

Getting laid off or fired can be an incredibly stressful and challenging time As you deal with the emotions and logistics of an unexpected job loss, getting a severance package from your employer can provide a bit of financial stability while you look for your next role

In this comprehensive guide we’ll cover everything you need to know about severance packages from what they typically include to negotiation strategies to help you get the best deal possible.

What is a Severance Package?

A severance package is a set of benefits an employer provides to an employee upon termination of employment. It usually includes some combination of:

Severance pay – Also known as separation pay, this is money (often 1-2 weeks’ pay per year worked) paid as a lump sum or installments after termination.
Continued salary – The employer continues paying your regular salary for a specified period of time after termination.
Healthcare coverage – The employer covers all or part of your healthcare premiums for a set time period. This is usually through COBRA.
Career transition services – Things like resume writing assistance, interview coaching, and job placement services.
Equity vesting – Allowing stock options or other equity compensation to continue vesting for a period of time after termination.
Outplacement services – Providing office space and administrative help during the transition period.
Legal fees – Paying legal fees related to the termination.
Bonus payment – Full or prorated payment of annual bonus.

Severance packages help terminated employees by providing financial stability as they search for a new job. For employers, they can reduce legal liability, improve public relations, and get a clean break from the former employee.

How Common are Severance Packages?

According to recent surveys, around 70% of companies offer some form of severance package. However, the prevalence varies significantly by industry, company size, position seniority, and whether the termination is performance-related.

Some key stats on the prevalence of severance packages:

Large companies – Over 90% of companies with 10,000+ employees offer severance packages.
Executives – Around 95% of executive terminations involve a severance package.
Layoffs – If you’re laid off as part of broader downsizing, there is an 80% chance of getting a severance package.
Firing for cause – If you are fired for poor performance or misconduct, only around 10% of companies offer any severance.

What is Typically Included in Severance Packages?

While each company handles severance differently, here are some of the most common components:

Severance Pay

This is the core element – providing terminated employees with a lump sum payment or installments of their regular salary for a period of time. Typical severance pay amounts:

1-2 weeks of pay per year worked is the most common formula.
For executives and senior management, it is more common to see 1-2 months per year worked.
The average severance payment for middle managers is around 5 months of salary.
Executive severance packages often exceed 12 months of pay.

Healthcare Coverage

Many severance packages cover COBRA premiums for the former employee’s existing health insurance policy for a set period of time, often aligned with the severance pay duration. This maintains health insurance during the transition.

Equity Vesting

For employees with stock options, RSUs, or other equity compensation, severance packages may allow for all or a portion of unvested shares to continue vesting during the severance period.

This prevents equity compensation from being lost solely because of the termination date.

Outplacement Services

Particularly with larger severance packages, employers may provide career counseling, resume assistance, interview coaching, job placement services, and access to office space/admin help during the transition period.

Bonus Payment

If fired mid-year before annual bonuses are paid out, the severance package may include full or prorated payment of the annual bonus you would have received.

Legal Expense Coverage

In cases where the termination settlement includes a release of legal claims, the severance package may include payment of related legal expenses. This covers the cost of having an attorney review the agreement.

How is Severance Pay Calculated?

While there is no fixed severance pay formula all companies follow, some common calculation methods include:

Weekly salary – 1-2 weeks of pay per year of service.
Monthly salary – 1-2 months of pay per year worked. More common for executives.
Unused vacation – Cashing out accrued but unused vacation days.
Overall tenure – Companies may look at total years worked rather than only the most recent period of employment. This rewards loyalty.
Position and salary – More senior roles with higher pay often see larger severance packages.
Bonus inclusion – Adding the average annual bonus paid over the past 1-3 years.
Industry and location – Tech companies and jobs concentrated in high cost-of-living cities tend to offer higher severance.

The severance calculation aims to provide a sufficient financial cushion based on the employee’s tenure, compensation level, and job market conditions.

When do Companies Offer Severance Packages?

Severance packages are most common in these situations:

Layoffs – As part of broader downsizing and restructuring, laid off employees typically receive severance.
Restructuring – If your job is eliminated due to reorganization.
Mergers and acquisitions – Leadership changes after a merger often involve severance.
Retirement – Early retirement packages may include severance.
Resignation – Key employees may get severance to stay during transition periods.
Contract expiration – For employees with employment contracts, severance is often included if not renewed.

However, performance-related terminations and firings “for cause” due to misconduct rarely involve severance packages.

What are the Benefits of Getting a Severance Package?

There are several advantages to getting a severance package versus being terminated without one:

Financial stability – Severance pay provides funds to cover expenses during the unemployment period.
Time to find work – Not having to immediately start a job search creates space to find the right fit.
Healthcare – Maintaining employer health insurance avoids disruption.
Equity vesting – Continued vesting of stock options provides additional future value.
Career assistance – Outplacement services like resume help and interview prep can aid the job hunt.
Neutral reference – A mutually agreed upon separation is better for your employment record.
Avoiding legal issues – Severance packages generally include a release of potential legal claims.

While unexpected termination is always challenging, a severance package can help minimize the hardship of job loss. The financial security and career assistance it provides allows for a more stable transition.

What to Know About Termination Release Agreements

Many severance packages come with strings attached in the form of a termination release agreement. This is a legal contract where you agree to waive potential legal claims against the company in exchange for the severance benefits.

Here’s what to know about termination agreements:

Review carefully – Have an attorney review the agreement to fully understand the terms.
Negotiate – Try to negotiate stronger severance benefits by asserting legal claims.
Timelines – There may be strict time limits to sign the agreement.
Releases – Understand exactly which legal claims you are waiving.
Confidentiality – Agreements often include sweeping confidentiality provisions.

While a fair termination agreement is generally advisable, make sure you enter into it knowingly and willingly. Do not hesitate to have an attorney assist with reviewing and negotiating the agreement.

When Should You Expect a Severance Offer?

If your company generally provides severance packages, here is the typical timing:

Layoffs – Details are usually provided at the time notice is given of your layoff.
Firing/restructuring – Final severance terms may come on the last day, but ask about it as soon as notified.
Resignation – Severance for resigning employees is negotiated on a case-by-case basis.
Retirement – Early retirement packages are detailed well before the retirement date.
End of contract – For employees working on contracts, severance is negotiated as part of the original hiring terms.

If you are told you will be terminated, inquire about severance as soon as possible. But expect details to emerge closer to the final separation

how to ask for a severance package

Why Would a Company Offer a Severance Package?

Companies typically offer severance packages as a gesture of goodwill and recognition of an employees service. A severance package reduces the sting of termination. A company may also offer one to stay competitive in its industry. Finally, severance packages are provided to forestall lawsuits, as employees often sign a release, agreeing not to seek further compensation or pursue legal action, as part of the separation agreement.

What Is an Appropriate Severance Package?

There is no single definition of an appropriate severance package, as they vary greatly by industry and company. However, severance packages typically include pay through the termination date and any accrued vacation time, unreimbursed business expenses, and an additional lump sum. By law, employers of a certain size must offer the opportunity to continue healthcare coverage under the companys plan at the ex-employees expense.

How to Get More Severance – An Employment Lawyer Explains

How do I negotiate a severance package when quitting a job?

Here are some steps to follow for how to negotiate a severance package when quitting a job: 1. Read your employee handbook Review the employee handbook your company provided you when hired. It may be a physical book or digital file. Your handbook likely includes information about: Look for information about the employee exit process.

How do I ask for a better severance package?

Here’s how to ask for a better severance package and get ready for negotiation: 1. Pause before signing anything It’s difficult to make good decisions when you’re stressed or upset. Give yourself some time before signing any legal agreements with your former employer.

Should you take a severance package if your employer offers a better deal?

Unfortunately, too many otherwise business-savvy individuals take whatever their employer offers them in a severance package—if their employer offers anything at all. Departing employees often think they have no leverage to ask for a better deal, or that pushing back will result in an even smaller severance package.

Can I accept a severance package if I’m over 40?

No! Ask how much time you have to decide whether or not to accept the severance package. Typically, you’ll be given a few days or even a few weeks to review the offer. (If you’re over 40 years old, federal law requires that you be given at least 21 days.) Whatever you do, don’t sign on the spot.