How to negotiate a severance package: what to ask for and when

Is severance negotiable?

Often, yes. Federal wage law does not require severance: the Department of Labor says the Fair Labor Standards Act has no severance requirement and that severance pay is a matter of agreement between an employer and an employee. Because the terms come from an agreement rather than a statute, the first offer is the employer’s proposal, and you can ask for changes before you sign it.

Employers usually offer severance in exchange for something: your release of legal claims. The EEOC explains that many employers offer departing employees money or benefits in exchange for a release, or waiver, of liability for claims connected with the employment relationship, including discrimination claims. That exchange is why a reasoned request is a normal part of the process rather than a favor. The EEOC’s own checklist suggests asking an adviser whether you should ask your employer to change any of the terms.

How much room you have depends on how the offer was made. The EEOC notes that senior executives commonly negotiate severance provisions when they are hired, while other employees are typically offered an agreement at the time of termination. In group layoff programs, it says the employer determines the terms, which typically are non-negotiable. Even then, it can be worth asking about items outside the formula, such as the departure date, the reference wording or the payment timing, and about anything that looks like a mistake, such as the wrong hire date.

Start by understanding what is on the table. Read the full agreement, note the deadline and list exactly what you would give up by signing. If the layoff has just happened, the guide to a job search after a layoff covers the first steps, from final pay to health coverage.

What you can negotiate besides the payment

The cash figure gets the attention, but it is rarely the only term that matters. A package with fewer weeks of pay and paid health coverage can be worth more than a larger payment without it, so list every item before deciding which ones to push on.

• Amount and form of payment: the EEOC describes severance consideration as either a lump sum or periodic payments of salary for a set period after termination. Ask which you are getting and when each payment arrives.
• Health coverage: COBRA generally requires the group health plans of employers with 20 or more employees in the prior year to offer continuation coverage for a limited period after a job loss, and you may be required to pay the entire premium, up to 102 percent of the plan’s cost. Confirm with HR that you qualify, then ask the employer to pay part of those premiums for a period.
• Bonus and commission: ask whether an earned or pro-rated bonus and any unpaid commission will be paid, and when.
• Equity: ask how unvested shares or options are treated, whether any vesting can continue or accelerate, and how long you have to exercise vested options.
• Earned pay is separate: the EEOC says the consideration for a release must be something of value in addition to what you are already entitled to, such as payment for earned vacation or sick leave you are already owed. Make sure final wages, and any vacation payout you are already owed under your employer’s policy, your contract or state law, are not being counted as the severance.
• Reference and departure wording: an agreed description of why you left, a neutral reference and the name of whoever answers employment verification requests.
• Restrictive terms: ask to narrow or drop a non-compete, shorten it or limit it to named competitors, and to make any non-disparagement clause apply to both sides.
• Practical items: your departure date, keeping a laptop or phone, outplacement or career coaching, and how internal announcements describe your exit.

How severance amounts are usually set

There is no single federal formula. The Department of Labor says severance pay is usually based on length of employment, and the EEOC notes that severance packages often are structured differently for different employees depending on position and tenure. Offers tend to follow one of a few patterns:

Find out which method produced your number. Ask HR for the policy or plan document and check the inputs: your hire date, including any earlier service the company recognizes, your base pay and the formula applied. A wrong start date or pay rate is an easy correction to ask for. The severance pay calculator turns your weekly pay, years of service and the weeks per year in your policy into an estimate you can check the offer against.

Age does not raise the amount on its own. The EEOC says an employer is not required to give an employee aged 40 or over more severance than a younger employee solely because the age discrimination law protects them. A case for more rests on your tenure, results and circumstances, not on a general norm.

• Weeks of pay per year of service: a set number of weeks of base pay for each year worked, sometimes with a minimum and a cap.
• Level-based amounts: a flat number of weeks or months for each job level, whatever your tenure.
• A written plan or policy: some employers run a formal severance plan, and the Department of Labor says its Employee Benefits Security Administration may be able to assist an employee who did not receive severance benefits under an employer-sponsored plan.
• Individual contract terms: some employment contracts and offer letters set severance at hiring, which is common for senior executives.

When and how to ask

Ask after you have the written agreement and before you sign it. Signing generally ends the discussion: the EEOC notes that an employee’s signature and retention of the payment generally indicates acceptance of the agreement’s terms. Use the review period the agreement gives you, and if the deadline feels rushed, the EEOC suggests asking for more time and putting that request in writing.

Keep the request specific and tied to reasons. The approach is the same as in salary negotiation: thank the employer, state a clear ask and explain why it is justified. The strongest reasons are factual ones: your tenure, results you delivered, a bonus you had nearly earned, unvested equity close to a vesting date, health costs for your family or a non-compete that would keep you out of your field.

If you meet in person or talk by phone, follow up the same day with a written summary, so any change you agree on ends up in the revised agreement rather than in someone’s memory.

1. Read the whole agreement and list the deadline, the payment terms and every claim and right you would release.
2. Check the inputs: your hire date, base pay, the formula used and any plan document.
3. Choose your priorities: lead with the item that matters most and keep secondary requests brief.
4. Send a short written request to the person who gave you the agreement, with a reason for each item.
5. Get every agreed change written into a revised agreement and reread it in full before you sign.

What to check before you sign a severance agreement

The EEOC describes a severance agreement as a contract between an employer and an employee that specifies the terms of an employment termination, and the release is usually the part that matters most. Read every paragraph, not only the payment clause. The points below draw on the EEOC’s guidance on severance waivers and its employee checklist.

A lawyer can review the agreement and tell you whether the terms are reasonable and whether to ask for changes. If you want that review, the EEOC suggests making the appointment promptly rather than waiting until the last day before the deadline. A review is most useful when the amount is large, the terms are hard to follow or you believe the layoff may have been discriminatory. This guide is general information, not legal advice.

• Deadlines: if you are 40 or older and the agreement waives age discrimination claims, federal law gives you at least 21 days to consider it and seven days after signing to revoke. If you are laid off at the same time as at least one other person in a reduction in force, the consideration period is 45 days. The EEOC says the 21-day period starts over if the final offer changes materially.
• What you release: the agreement should make clear which claims you give up, and it may not ask you to waive rights or claims that arise after the date you sign.
• Rights you keep: the EEOC says no agreement can limit your right to file a charge with the EEOC or take part in its investigations, and you cannot be required to return severance pay before filing a charge.
• Claims that should not be released: the EEOC checklist says to make sure the agreement does not ask you to release claims for unemployment compensation, workers’ compensation, Fair Labor Standards Act claims, COBRA health benefits or vested retirement benefits under ERISA.
• Age-claim requirements: for workers 40 or older, a valid waiver of age claims must be written so it can be clearly understood, refer to the Age Discrimination in Employment Act by name and advise you in writing to consult an attorney.
• Taxes: the IRS says severance pay must be included in income and that severance payments are subject to social security and Medicare taxes and income tax withholding.
• Other terms: confidentiality, non-disparagement, non-compete and non-solicitation clauses, return of company property and the payment schedule.

A severance negotiation email you can adapt

Send the request to the person who gave you the agreement, usually your HR contact or manager. Keep it short, polite and specific. Replace every bracket with your own facts and drop any request that does not apply to you.

If the employer declines, ask whether any single item can move, such as the payment timing or the reference wording. If the answer is still no, decide within the deadline whether the original offer is worth the release you would give.

Severance and unemployment benefits

Severance can affect when and how much unemployment insurance you receive, and the rules depend on your state. The Department of Labor’s claims handbook says disqualifying or deductible income is governed by state law, and that although provisions vary among the states, most provide for disqualification or reduction in benefits for any week in which a claimant receives income such as wages in lieu of notice or dismissal pay.

Before you sign, ask your state’s unemployment insurance program how it treats the payment you are offered, whether a lump sum or continued salary, and when you should file. CareerOneStop’s Unemployment Benefits Finder shows where and how to file for unemployment benefits in each state. Report severance accurately whenever the claim asks about it.

Your agreement should not take away the claim itself: the EEOC checklist says to make sure an employer is not asking you to release claims for unemployment compensation benefits.

Severance buys time rather than replacing the search. Plan the weeks it covers with the guide to a job search after a layoff, and when the next offer arrives, use the salary and offers guides, starting with how to evaluate a job offer.