Severance Package Evaluator

Understanding Severance Package Components

When a company lays off or terminates an employee, they typically offer a severance package—compensation beyond what's legally required. A comprehensive severance package may include weeks of salary continuation, health insurance coverage, outplacement services, unused vacation payout, and retirement contributions. However, the true value of a severance package is not simply the dollar amount offered—it depends on taxation, your ability to find new employment, non-compete restrictions that may limit job options, and how the timing aligns with your financial needs. A severance package worth $50,000 before taxes may be worth only $37,500 after federal and state taxes, and its real value depends on whether you can replace your salary before it runs out.

Severance Package Calculations

The gross severance value includes all components:

Where GS is gross severance, W is weeks offered, S is annual salary, V is vacation payout, H is health insurance value, R is retirement contributions, and O is outplacement services. However, the taxable portion (typically salary and vacation) must be reduced by estimated taxes, while health insurance continuation and outplacement are often not taxed.

Worked Example: Evaluating a Severance Offer

Marcus earned $100,000 annually at a company that laid him off. He's offered: 16 weeks of severance, his 20 unused vacation days paid out ($3,846), 12 weeks of health insurance continuation (worth $5,400), and $3,000 in outplacement services.

Severance Components:

• Salary severance: 16 weeks × ($100,000/52) = $30,769
• Vacation payout: 20 days × ($100,000/260 days) = $7,692
• Health insurance value: 12 weeks × $450/month = $5,400
• Outplacement: $3,000
• Gross total: $46,861

Tax Implications:

• Taxable portion: $30,769 + $7,692 = $38,461
• Estimated taxes (25%): $9,615
• Net severance: $46,861 - $9,615 = $37,246

Duration Analysis:

• Weekly severance: $37,246 / 16 weeks = $2,328/week
• If job search takes 12 weeks, he has 4 weeks of severance left as a buffer
• If job search takes 16+ weeks, severance ends while still job searching

Fairness Assessment:

• Industry standard: 1 week per year of employment
• Marcus's offer: 16 weeks / 10 years employment = 1.6 weeks per year (above average)
• Assessment: Good severance package

Comparison Table: Typical Severance Offers

Tenure	Standard Weeks	Premium Weeks	Executive Weeks
Less than 1 year	2 weeks	4 weeks	8 weeks
1-3 years	4 weeks	8 weeks	12 weeks
3-5 years	6 weeks	12 weeks	16-20 weeks
5+ years	8+ weeks	16+ weeks	20+ weeks

Key Negotiation Opportunities

Unused Vacation Payout: Many states legally require companies to pay unused vacation. Don't leave this money on the table.

Health Insurance Continuation: COBRA typically costs significantly more than employer-sponsored premiums. Severance that covers health insurance for several months has substantial value.

Outplacement Services: Quality outplacement can accelerate job searching. If offered minimal outplacement, ask if the company can increase cash severance instead.

Extended Benefits: Ask about extending vesting of stock options or accelerating restricted stock units (RSUs) that would otherwise be forfeited.

Non-Compete Modification: If a non-compete significantly restricts your earning potential, negotiating to shorten or modify it can be worth thousands.

Key Assumptions and Limitations

• Tax rates estimated: Your actual tax rate depends on total income, state taxes, FICA, and other factors.
• Job search timeline uncertain: Unemployment duration depends on skills, job market, industry, and effort.
• Health insurance costs variable: Family plans cost significantly more than individual coverage.
• Non-compete enforceability varies: State laws differ on non-compete enforceability and restrictions.
• Outplacement value subjective: Career services value depends on quality and your industry.
• Doesn't include unemployment insurance: You may qualify for UI benefits that supplement severance.
• Doesn't account for job market conditions: Economic cycles dramatically affect job search duration.

Making Your Decision

Use this calculator to understand the true value of a severance offer and to benchmark it against industry standards. If the offer seems low, you have negotiating room—request additional weeks, extended benefits, or non-compete modifications. Compare the severance amount to your expected job search timeline and financial runway. If severance covers your unemployment period and provides a modest buffer, it's adequate. If not, negotiate for more or ask about other forms of support (extended benefits, consulting arrangements, etc.).