Severance Pay Guaranteed

Unless your employment contract or company handbook specifies it, your employer isn’t legally required to pay you if you get laid off. Many employers, however, do offer severance pay to help cushion the blow of losing your job and give you time to find a new one. Often, companies will also include benefits such as discounted health insurance and outplacement services to help you find a new job.

The amount of severance pay you’ll receive varies from company to company. The average is around a week or two of salary for each year you worked, though some middle managers and executives may be paid more than this. Usually, the more senior you are, the higher your severance package will be.

Most severance packages will also come with a stipulation that you won’t sue the company or speak negatively about it, says Denise Clark, an attorney and founder of the Clark Law Group in Washington D.C. This is an attempt to protect the company from liability in case you later decide to file a lawsuit over your termination, she says.

Severance pay typically is taxed in the same way as your regular wages, says Sahara Pynes, a lawyer and co-founder of the firm LawDesk. Your former employer will withhold taxes, including federal income tax and Social Security and Medicare, just as they would for any other paycheck. You’ll then see this money listed as part of your taxable income on the W-2 form your former employer will send you at the end of the year.

Is Severance Pay Guaranteed When You Get Laid Off?

Depending on your circumstances, you may want to negotiate the terms of your severance package. For example, if you’re in a long-term position, you might be able to get your how to get severance pay increased or extended over the course of several years rather than all at once, which can reduce your tax burden.

Some states have laws requiring employers to pay severance for workers who are laid off due to company closings or mass layoffs, or when they terminate employees for certain reasons, such as absenteeism or failing a drug test. However, these laws typically only apply if the employer follows the law correctly.

If you’re laid off from your job, make sure you have a hefty emergency fund to cover the loss of income, and consider working with a financial advisor to make recommendations for covering expenses in the short term without impacting your long-term retirement goals. A Northwestern Mutual financial advisor can assess your overall financial picture and suggest ways to make ends meet until you find a new source of income, such as investing in cash flow assets or reducing expenses. To learn more, register for a free NerdWallet account or sign in to watch on demand a previously recorded one-hour webinar about tax filing and planning strategies.

Severance pay is a common topic of concern and confusion for both employees and employers. When facing a layoff, many employees wonder if they are entitled to severance pay and if so, how much they can expect to receive. The truth is, whether severance pay is guaranteed upon being laid off depends on various factors including company policies, employment contracts, and local labor laws.