By Pat Brown, MBA
Losing a job is never easy, but a severance package can provide much-needed financial stability as you transition to your next opportunity. However, not all severance packages are created equal. Understanding what’s included—and what’s not—can help you make informed decisions and negotiate for a better deal if necessary.
What Is a Severance Package?
A severance package is a compensation and benefits package that some employers offer when they lay off employees. It is typically designed to ease the financial burden of unemployment while also protecting the company from potential legal disputes.
While severance is not legally required in most cases, companies often provide it to maintain goodwill, protect their reputation, and ensure a smooth transition for departing employees.
What’s Typically Included in a Severance Package?
1. Severance Pay
- This is the lump sum or periodic payments given to you after your employment ends.
- Often based on years of service (e.g., one or two weeks of pay per year worked).
- May be negotiable depending on company policies and your tenure.
2. Continuation of Health Benefits
- Employers may offer extended health insurance coverage for a set period.
- You may also be eligible for COBRA coverage, allowing you to continue your health insurance (though at your own expense).
- Some companies subsidize COBRA costs for a few months.
3. Unused Paid Time Off (PTO) or Vacation Pay
- Some companies will compensate you for unused vacation days.
- Sick leave payout depends on company policy and state laws.
4. Outplacement Services
- Some employers provide career counseling, resume assistance, or job placement services to help with your transition.
- This can be a valuable resource, so take advantage if offered.
5. Stock Options & Retirement Plans
- If you have stock options or equity compensation, check the terms—some companies allow you to exercise options for a limited time after leaving.
- Review 401(k) and pension plans to understand rollover options or vesting status.
6. Non-Compete & Non-Disclosure Agreements (NDAs)
- You may be required to sign a non-compete agreement, restricting you from working with competitors for a period.
- Some severance packages include NDAs, which prevent you from disclosing company information.
- Carefully review these terms, as they can impact your job search.
What’s NOT Typically Included in a Severance Package?
1. Unemployment Benefits
- Receiving severance may impact your eligibility for unemployment benefits.
- Some states require you to wait until severance payments stop before filing.
2. Future Employment Guarantee
- Severance does not mean you’ll be rehired if the company recovers.
- It’s a final payout, not a promise of future work.
3. Bonuses & Commissions
- If you were expecting a year-end bonus or commission, it might not be included unless explicitly stated in your contract.
- Ask your HR department about prorated payments for commissions.
4. Company Perks & Benefits
- Gym memberships, tuition reimbursements, company cars, and expense accounts often end immediately.
- Check your employment agreement to confirm what benefits continue post-employment.
5. Accrued Sick Leave
- Unlike PTO, many companies do not pay out unused sick leave.
- However, state laws may require payout in certain cases.
How to Negotiate a Better Severance Package
If your severance package isn’t as strong as you’d like, negotiation is an option. Here’s how to improve your offer:
✅ Review Your Employment Contract
- Check for clauses regarding severance, bonuses, or equity payouts.
✅ Ask for More Pay or Extended Benefits
- Request additional severance weeks or extended healthcare coverage.
- Highlight your years of service and contributions.
✅ Negotiate Restrictive Clauses
- If a non-compete limits your job prospects, ask for modifications.
- Seek legal advice if you’re unsure of your rights.
✅ Ensure You’re Receiving What You’re Owed
- Verify that PTO, bonuses, and stock options are accounted for.
- Request a written breakdown of your severance package.
Final Thoughts
Understanding your severance package is critical to making informed financial decisions during your transition. Carefully review what’s included, what’s missing, and what you can negotiate. If anything is unclear, consult with HR or seek legal advice before signing any agreements.
While losing a job is challenging, having clarity about your severance package will help you move forward with confidence and financial security.
Pat Brown, MBA, is a financial expert with years of experience helping individuals navigate career transitions, severance negotiations, and financial planning. His goal is to provide practical, actionable advice to empower professionals in uncertain times.
