Typical Severance Pay Formulas

severance formulaWith so many jobs disappearing due to cut backs and downsizing, severance packages are becoming more and more common. As a result, workers who are laid off are wondering what their severance package should look like. The most common question about severance packages is how much money should I be getting?

Much like salaries, severance payments have widely varying scales. The amount you actually receive could depend on many factors.

  • Are you an hourly or salaried employee?
  • Are you a worker bee or part of upper management?
  • Perhaps somewhere in between?
  • What are the circumstances of your dismissal?
  • How long have you worked for your company?

The answers to all of those questions will help determine the amount of severance pay your employer will offer.

While your final number will vary from other employees receiving severance, most companies do use a pretty standard formula for calculating the amount each worker will be paid.

For hourly employees, the typical calculation looks like this:

# of years with company X 1 week of regular pay = Severance Pay $ Total

So if you typically make $800 per week, and have worked at your company for 5 years, your severance pay would be $4,000. (5 years X $800 = $4,000)
For salaried employees, the typical calculation looks like this:

# of years with company X 2 weeks of regular pay = Severance Pay $ Total

Let’s say your salary is $80,000 per year. That works out to about $1600 per week, or $3200 for two weeks. If you have been with your company for 5 years, your severance pay would be $16,000. (5 years X $3200 = $16,000)

Both scenarios usually have a cap at about 25 or 26 weeks of pay. If you are part of upper management, however, your severance pay could be much higher. Severance packages for management can range from 6 months to a year of pay, or even higher.

The most important thing to remember when being offered a severance pay amount is that nothing is set in stone. While HR will tell you they have a set calculation, you should always ask for more. If they cannot offer you more in money, be sure to request additional perks like extended healthcare benefits, job placement services, or even equipment like your company cell phone and laptop.

No matter what you are offered, consider having a severance lawyer review your agreement for you before you sign. There may be more room to negotiate than you know.