Losing your job can be stressful, but understanding severance pay can help you plan your next steps. This guide explains what severance packages typically include, the amount you might expect, and your rights when negotiating employment termination agreements in 2025.
What Is Severance Pay?
These payments are money and benefits your employer gives you during employee separation, beyond your final paycheck and unused time off. They help bridge the gap while you look for new work.
Companies offer these payments in different ways. You might get a lump sum payment all at once, or monthly payments over several months. Some employers also continue your health insurance for a limited time through continuation of benefits programs.
The U.S. Department of Labor states: “There is no requirement in the Fair Labor Standards Act (FLSA) for severance pay. These payments are a matter of agreement between an employer and an employee.” This means most payments come from company policy on severance or individual employment contracts, not legal requirements.
Many companies use a severance calculation formula to determine these payments. Often, companies choose a formula that pays out 1 to 2 weeks’ worth of wages for each year of a worker’s employment. However, some companies prefer flat amounts instead.
What’s Typically Included in a Severance Package?
Severance Payment
The main part of any severance package is the payment itself. You might receive this as a single lump sum or spread out over several months as installments.
Most companies calculate severance using years of service. A common approach is one to two weeks of pay for each year you worked there. For example, if you worked five years and earned $1,000 per week, you might get $5,000 to $10,000 in severance.
Federal employees follow different rules set by the Office of Personnel Management. They get one week’s pay per year of service for their first 10 years, then two weeks per additional year after that. Some packages also include stock options, vesting, or other retirement savings account benefits.
Benefits and Insurance
Good severance packages often include temporary health insurance continuation, similar to COBRA programs. This gives you time to find new coverage or sign up for COBRA benefits.
You should also receive accrued vacation pay for any unused vacation days and sick leave you’ve earned. Some companies pay this out separately from your main severance amount. Larger companies may also offer outplacement services to help with job searching and transition assistance programs.
Legal Agreements and Waivers
Most severance packages come with severance agreements that include legal papers you must sign. These often include a legal waiver of claims not to sue your former employer or share company secrets.
In 2024, the FTC banned most non-compete agreements, so employers can’t stop you from working for competitors through severance agreements. However, you might still need to sign other types of legal waivers.
Some cities now require specific waivers. For example, Denver implemented a policy in August 2025 requiring laid-off city employees to waive their right to sue to receive severance.
Do Employers Have to Offer Exit Payments?
Federal law does not require employers to offer these payments during redundancy and layoffs. Most state laws don’t require them either. These payments typically come from three sources: company policy on severance, individual employment contracts, or collective bargaining agreements.
Companies usually offer these payments during layoffs, when executives leave, or as part of written severance pay policies. Some employers use these packages to encourage employees to leave voluntarily during restructuring.
Even without legal requirements, many companies offer these benefits to maintain good relationships with former employees and protect their reputation.
How Much Can You Expect in 2025?
Severance payment types and amounts vary widely based on several factors. Your job level, years of service, and severance pay policy 2025 updates all affect how much you might receive.
Entry-level workers might get one week’s pay per year worked, while executives often negotiate much larger packages. Companies also consider their financial situation and whether layoffs affect many employees at once.
A typical package includes pay, severance insurance continuation, and accrued vacation payout. However, there’s no standard amount across all industries or company sizes.
Your negotiating position depends on your role, performance, and whether you have an employment contract. Senior employees and those with specialized skills often have more leverage when discussing employee severance rights.
How Severance Pay Affects Other Benefits
Unemployment Benefits
These payments might be delayed until you can start collecting unemployment benefits. Understanding severance pay vs unemployment benefits rules varies by state, so check with your local unemployment office.
Some states count lump-sum payments as income for the weeks they would have covered if paid normally. Others don’t count these amounts at all when determining severance pay eligibility for unemployment benefits.
If you receive severance pay after a layoff in installments, they might reduce your weekly unemployment benefits might be reduced during those weeks.
Retirement and Pension
These payments usually don’t count toward employee retirement benefits, service years, or pension contributions calculations. However, some packages include continued contributions to retirement accounts for a limited time.
Check whether your package affects when you can access 401(k) funds or whether the company will continue matching contributions during your payment period.
Negotiating a Severance Package in 2025
Key Steps
Don’t rush to sign your severance agreement. Read it carefully and understand what you’re agreeing to give up in exchange for the payment. Consider the legal considerations in severance before signing any documents.
Ask questions about your severance pay calculation for the 2025 amount. Find out if they included payment for unused vacation and sick days. Request details about continuing health insurance or career counseling services.
Consider the timing of your payments. Sometimes, monthly payments work better for tax purposes or unemployment benefits than a lump sum payment. Some companies may also offer retraining programs as part of the package.
Special Rules for Employees Over 40
If you’re 40 or older, federal law gives you extra time to review offers. You get at least 21 days to consider the agreement, or 45 days if your company is laying off multiple employees.
After signing, you have seven days to change your mind and revoke the agreement. These protections help ensure you make informed decisions about age discrimination waivers.
Tips for Negotiation
Stay professional during negotiations. Focus on facts like your years of service, job performance, and company policies rather than emotional appeals.
Consider consulting an employment lawyer, especially for large packages or complex agreements. Legal fees might be worth it for significant payment amounts and understanding the severance pay laws of 2025. If you believe your termination was improper, you may want to learn more about wrongful termination before agreeing to any severance terms.
The Twitter arbitration case from 2024-2025 shows that employees can sometimes win disputes over unpaid benefits. This precedent might help in negotiations or legal challenges.
Key Legal Updates to Know in 2025
The FTC banned non-compete clauses in April 2024, so employers cannot enforce these restrictions in exit agreements. This gives workers more freedom to find new jobs with competitors.
Denver’s 2025 policy shows how local governments are creating new requirements. The city requires employees to waive lawsuit rights to receive exit payments, with 30 to 45-day review periods based on age.
The Twitter arbitration case from 2024-2025 demonstrates that employees can successfully challenge unpaid exit benefits through legal channels. This precedent may encourage other workers to pursue similar claims.
Conclusion
Severance pay in 2025 remains voluntary for most employers, but packages typically include payment based on service years, benefits continuation, and legal waivers. Understanding your rights and carefully reviewing any agreements helps you make informed decisions.
Take time to negotiate terms that work for your situation. Consider consulting an employment attorney for significant packages or complex agreements.
FAQs About Severance Pay
What is included in a severance package?
Typical packages include payment based on years of service, temporary health insurance continuation, and payout of unused vacation time. You’ll also likely sign legal waivers.
How is severance calculated?
Most companies offer one to two weeks of pay for each year of service. Some use flat amounts or different formulas based on job level and company policy.
Can I negotiate a severance package?
Yes, you can often negotiate the amount, payment timing, benefits continuation, and other terms. Senior employees typically have more negotiating power.
Does severance affect unemployment benefits?
It might delay or reduce benefits depending on your state’s rules. Lump-sum payments may count as income for certain weeks, while installments might reduce weekly benefits.
How long do I have to review an offer if I’m over 40?
You get at least 21 days to review the agreement, or 45 days during group layoffs. After signing, you have seven days to change your mind.
What legal waivers are common in 2025?
Common waivers include giving up the right to sue for wrongful termination or discrimination. However, employers can no longer enforce non-compete clauses due to the 2024 FTC ban.
