If you’ve been fired or laid off, you might have been offered severance pay — or you might be wondering if you can negotiate for it if you leave your job. But being terminated or leaving a job can be a stressful time, and you might not know how to take full advantage of your options. Here’s a guide to severance pay — how it works, who gets it, and more.
What is severance pay?
Severance pay is a payment or series of payments that an employer might offer when it lays off or fires an employee. It could also include the continuation of your health-care benefits for a certain period of time.
Why do companies offer severance pay?
Companies offer severance so that your income won’t disappear overnight — which is good for you, but also good for the company from a PR standpoint. Severance can also help the morale of employees who remain, since they’ll know that the company is trying to cushion the impact your termination has on you financially. It’s in the company’s best interests not to appear coldhearted to its remaining workforce.
There’s something else in it for the company, too: In exchange for severance, you’ll almost always need to sign what’s known as a “general release,” a legal document releasing the company from any future legal claims. In other words, to receive the severance, you’ll need to agree that you won’t sue them over something like discrimination or harassment in the future.
Is severance pay required by law?
No. Severance pay is up to the company’s discretion, unless you have a contract that requires it.
However, if your company has more than 100 employees and is laying off at least 50 people, the federal W.A.R.N. Act requires it to provide workers with at least 60 days’ notice of the impending layoff. If it doesn’t do that, the law requires it to pay you for up to 60 days after the layoff.
How much severance pay is typical?
It depends! Different companies offer different amounts. The most common model is to use a formula based on your salary and how long you’ve worked there. For example, a company might offer two weeks’ salary for every year you’ve been there — so if you’ve worked there four years, you’d be offered eight weeks of salary. One or two weeks of salary per year of employment is typical — but some companies offer more and some less.
Under what circumstances might you be offered severance pay?
Most commonly, you’ll be offered severance if you’re being laid off — meaning that your job is being eliminated.
But in some cases you might be offered severance if you’re being fired for performance reasons. That’s much less common, but it does happen — and your chances go up if (a) the company believes you made a good-faith effort but the job wasn’t the right fit; (b) the job changed after you were hired, so the company sees that it’s not your “fault” that it didn’t work out; or (c) the problems were strictly performance-related and not about conduct. You might also be offered severance when being fired if the company has some reason for wanting you to sign that release of legal claims — like if it worries you have grounds to sue over something that happened during your employment. (That’s true even if it believes it followed the law and would ultimately prevail in a lawsuit; companies often prefer to pay severance to ensure they don’t have to spend resources fighting a legal battle.)
Can you get severance pay when you quit?
Typically, no. Severance is usually for employees who are being let go involuntarily.
However, there are some exceptions to this. If it’s clear that your work isn’t going well but your employer prefers not to fire you, you might be able to negotiate an exit that includes severance. Or, if you believe you have a legal claim against your employer, you might be able to negotiate a departure that includes severance in exchange for signing a release of claims. In most cases, though, severance isn’t given to employees who voluntarily resign.
Can you negotiate for more severance pay?
Yes! Well, sometimes. It’s generally reasonable to try, and you might get it.
In negotiating for more, think about any factors that might sway the company in your favor. For example, maybe your manager persuaded you to turn down a job at a different company earlier this year, and you can argue that your severance should be increased because your loyalty to the company is leaving you unemployed now. Or maybe you moved for the job just six months ago, taking the company at its word that it’d have long-term work for you. The people you’re negotiating with are human and can sometimes be swayed by arguments about fairness or ethics.
And remember, you can negotiate for more than just a higher payout. You can negotiate to be paid for unused vacation and sick days, having the company cover your health-insurance premiums for longer, or even keeping your company laptop.
Do you have to sign on the spot?
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.)
So don’t sign on the spot. Take the agreement home, read it carefully, and give real thought to the rights you’d be giving up. It some cases it will make sense to talk to a lawyer — especially if you think you have legal claims against the company, or if you’re being asked to sign a noncompete that would limit what other types of work you can accept after you depart. A lawyer can advise you on whether to sign and can also help you negotiate a better package.
Order Alison Green’s book Ask a Manager: Clueless Colleagues, Lunch-Stealing Bosses, and the Rest of Your Life at Work here. Got a question for her? Email email@example.com. Her advice column appears here every Tuesday.