By: Gregg Zeff
On: May 22, 2025
Often when an employee loses their job due to instances such as layoffs, downsizing, restructuring, or a specific agreed-upon circumstance, employers may offer a severance package. A typical severance package is a set of benefits and compensation that typically include a financial payment, extension of health benefits, and possibly outplacement services to assist in finding new employment. While severance packages vary by employer and situation, this guide breaks down what’s typically included and what you can realistically expect when it comes to a normal amount of severance pay, benefits, and support.
Understanding Severance Packages
A severance package is created to provide financial and practical support to an outgoing employee. Severance packages are a collection of benefits and compensation offered by the former employer to assist the employee through the difficulties of transitioning to new employment. While a severance package can bridge financial and health obstacles during this transition, employers can mitigate legal risks and maintain employee morale by offering severance pay and benefits.
It is important to note that severance packages and severance pay are not required by law. Severance packages are often based around the employee’s length of tenure and level of employment. They are most commonly dictated by company policy, individual contacts or collective bargaining agreements.
Common Parts of Severance Packages
There are several common parts that are frequently built into severance packages.
Severance Pay
A normal severance pay amount is typically calculated based on a formula, generally made by the employers, that incorporates the employee’s tenure and position with the company. In the case of employees who worked in specialized roles or higher-level executive positions, severance pay may tend to be more generous through tiered systems and formulas.
Continuation of Benefits
Severance packages often include a continuance of benefits to the employee as a safety net while the employee secures employment. Some packages will offer to maintain the same level of insurance for a period of time, others may subsidize the cost of COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage. Other benefits that may be continued are employee assistance programs (EAPs) or life and disability insurance.
Outplacement Services
Severance packages can also include outplacement services to assist former employees find new employment. Some of these services to ease this transition include:
- Resume and cover letter writing
- Career counseling and coaching
- Interview skills training
- Job search resources and networking opportunities
The goal of this benefit of the severance package is to provide former employees the tools and guidance to secure their next employment opportunity.
Retirement and Pension Considerations
Severance packages can outline the treatment of existing vested retirement funds and provide options for the former employee to follow. The severance package can also specify if there will be any outstanding employer contributions to be made leading up to the termination and any other modifications to these benefits.
How Much Severance Pay Is Normal?
The amount of severance pay an employee receives often depends on factors such as company policy, industry standards, employee tenure, and position within the organization. While there’s no federally mandated amount, a common rule of thumb is one to two weeks of pay for every year of service.
For example, if you’ve been with a company for 10 years, you might expect between 10 and 20 weeks of severance pay. Executive-level employees or those in specialized roles may receive significantly more — sometimes several months’ worth of pay or a lump-sum payout as part of a negotiated agreement.
It’s important to remember that this amount is negotiable, especially if there are unique circumstances surrounding your departure. A severance package attorney can help you determine whether the severance package offered is fair based on your individual situation and industry norms.
Factors That Can Influence Severance Packages
There are two key factors that influence severance packages and severance pay.
Company Policy & Industry Standards
The company’s policies have a profound impact on the severance package offering. A company that is financially healthy and places high value in employee treatment, tends to offer more comprehensive severance packages and by extension, more severance pay. Past practice and established organizational policy often dictate the offerings in a severance package. Such internal policies ensure specific formulas and consistency in severance calculations.
Industry standards are critical benchmarks in shaping severance agreements. These external influences include the general expectations of the industry, competitors’ packages, and legal precedents. Industries that face higher turnover rates or are challenged with finding high-level employees may offer more generous severance packages.
Employee Tenure and Position
In most circumstances, the greater the tenure, the more generous the severance package. Severance packages often reflect or recognize the contributions, loyalty, and significance of employment disruption to individuals of greater longevity with the company.
The former employee’s position within the organization is a key factor in the structure of the severance agreement. For individuals who play critical or highly specialized roles in the company tend to receive greater severance pay. The difficulty for these employees to find comparable employment and the potential impact of their departure correlate into more favorable severance agreements.
- New Jersey does not mandate severance packages for all terminations. However, the state does uphold the Worker Adjustment and Retraining Notification (WARN) Act which does have implications for severance agreements in specific circumstances. The WARN Act creates a legal obligation for severance in the case of large-scale layoffs and closures in the Garden State.
Negotiating a Severance Package
Severance packages are often open to negotiations. Two critical points to consider in negotiation are:
Assessing Your Severance Package Leverage
When assessing your leverage to negotiate with the employer, ascertaining the assistance of legal counsel is crucial. The expert team at Zeff Law can advocate for the employee’s rights and protections in a favorable agreement. In identifying key factors such as performance, longevity, and organizational circumstances, a skilled severance package lawyer can increase the favorability of higher severance pay.
Key Severance Package Terms to Negotiate
With the assistance of a professional severance package attorney, identifying the specific elements of a severance package that may be negotiated is crucial for success. Common negotiable terms are:
- Severance pay
- Extended benefits
- Outplacement service
- Non-compete/non-solicitation clauses
- Release of claims
- Stock options or equity
View our guide on additional tips on negotiating a better severance package. Knowing your rights and options can make a significant difference in the outcome of your severance package and ultimately your severance pay.
Legal and Financial Considerations
When handling the nuances of a severance package, it is crucial to procure legal advice.
Reviewing Your Severance Package
Due to their complexity and the potential long-term impact on the employee, reviewing severance agreements with legal counsel is critical. The legal expertise of a severance package attorney is invaluable when navigating items such as non-compete clauses, release of claims, severance pay, and tax consequences. Legal counsel will ensure that the severance package serves your needs and protects your best interests.
Tax Implications of Severance Packages
It is imperative to seek expert financial and legal advice when addressing the tax implications of severance packages. Severance pay can significantly impact your tax liability. Seeking such expertise can enable employees to make well-informed decisions when managing funds and seeking tax-advantaged investment and savings options.
How to Get the Most Severance Pay Out of Your Severance Package
Severance packages have a myriad of components that require careful and expert consideration. During these difficult and trying times of employment transition, severance agreements are vital to your financial, physical, mental, and emotional well-being. The expert legal team at Zeff Law Firm can advocate for your fair severance package while protecting your rights and best interest, contact us today for your free consultation.