What is severance: How to negotiate a severance package?


Rachita Jain


Word Count
It's simple to be overwhelmed by all the information when your employer notifies you that you're getting laid off. The majority of the time, though, it's simple. Companies often provide a severance package to aid in your financial stability while you hunt for new employment.
The adequacy of a severance package depends on various factors, including your length of service with the company, your salary, and the terms of the package itself. Some severance packages may be more generous than others, depending on the employer's policies and your bargaining power.
In general, severance packages provide immediate financial support to help you transition to a new job. However, they may not fully replace your lost income, and you must consider your needs and obligations carefully before accepting a severance package.

What are severance packages?

A severance package is a package or an agreement between a company and an employee that provides the employee with compensation and benefits when they are laid off or terminated. The purpose of a severance package is to provide the employee with some financial support and assistance during the transition after losing their job.
Severance packages can vary. It depends on the company and the circumstances of you's departure. Generally, a severance package may include some or all of the following components:
  • Severance pay:
A lump sum payment that compensates you for a certain period based on your salary and length of service with the company. Your final cheque is the money owed for the task you've previously finished. Severance pay is when employers give laid-off workers extra money as transitional financial aid.
  • Continued health insurance coverage:
The employer may continue to pay for your health insurance for a certain period. Although there is no hard-and-fast rule, workers typically receive one to three weeks of pay for each year of employment.
(COBRA) or The Consolidated Omnibus Budget Reconciliation Act is a federal law in the U.S. that mandates that businesses with more than 20 employees offer COBRA coverage. For different nations, the rules and provisions are different. Make sure you comprehend the specifics of this coverage and how they will ultimately impact you and your family. Without your company's help, paying all your health insurance payments on your own can soon become financially crippling.
  • Outplacement services:
The employer may provide you with assistance in finding a new job, such as career counseling, resume writing services, and job search resources.
You might also ask to join well-known job sites, recruiting services, or industry certification programs to increase your marketability. This might be a straightforward victory at the negotiating table if they are not included.
  • Retirement benefits:
You may be able to keep your retirement benefits or receive a portion of them as part of the severance package. It's possible that you received annual stock that hasn't yet been vested. They frequently vest in yearly increments to entice workers to stay with the business. Your employer can offer to speed up the vesting timeline, given that you aren't quitting on your own accord. You will have quicker access to money as a result. When cashing out your retirement plans, you should consider potential tax ramifications.
  • Sick time or unused leaves:
Companies frequently offer vacation money as part of a severance settlement, which is not required. Many businesses consider this to be money you've already made. The same holds for any unutilized sick days. Typically, those rules are specified in detail in your handbook at the time of recruitment and are subject to the laws of each state.
You should also consider any profit sharing you were planning to get as part of your annual compensation when calculating your vacation and sick leave. Check to see if that is handled, and if not, ask for more information.
  • A letter of recommendation:
While looking for a new job, a letter of recommendation from your previous company can be helpful. It might draw attention to your best qualities and relieve you from worries about your unemployment. Take the time to review it to ensure the terminology appropriately captures what you achieved in the role because you are the expert on your career.
  • Company equipment:
More employees than ever before are using company technology in their home offices because of the growth of remote work. Your severance agreement should specify whether and when you must return any equipment and who will pay the shipping costs. You can bargain for extending benefits like gym memberships, company cars, or commuting tickets in addition to your equipment.
Severance packages are not mandatory under U.S. federal law, although some states or industries may have specific rules or regulations that require or affect them. Severance packages are negotiated between the employer and employee, often as part of a more significant separation or employment agreement.

How to determine if your severance package is enough

Determining if a severance package is enough is a personal decision that is dependent on many factors, including you's financial needs, your prospects for finding a new job, and the terms of the package itself. There is no one-size-fits-all answer to this particular question, and the adequacy of a severance package will depend on your unique circumstances and employment situation.
However, you can consider these factors when evaluating the adequacy of a severance package:
Length of service: Employees who have worked for a company for longer may be entitled to a more generous severance package. Some companies use a formula that considers your length of service, while others may negotiate a severance package case-by-case basis.
Salary and benefits: Severance packages are typically calculated based on your salary and the benefits you are entitled to. Employees who earn a higher salary and have more benefits may be entitled to a larger severance package.
Comparable packages: Employees can research comparable severance packages offered by other companies in their industry or location to understand what is typical or reasonable.
Cost: The cost of living in your area may also be a factor in determining the adequacy of a severance package. Employees who live in areas with a higher cost of living may need a more generous severance package to cover their living expenses.
As mentioned above, there is no one-size-fits-all approach regarding how severance packages are generally calculated. Some companies use a formula that considers your length of service and salary, while other employers negotiate a severance package on a case-by-case basis. Some factors that may be considered include your position, salary, and length of service, as well as the circumstances surrounding your departure (e.g. whether you were laid off or terminated, whether the release was voluntary or involuntary).
It's crucial for you to carefully review the terms of your severance package and consider your own financial needs and obligations before accepting any offer. If you have any questions about your severance package, you may seek guidance from a legal or financial professional.

How are severance packages generally calculated?

The Indian Severance Pay Calculation Formula
Overall severance pay is equal to [Weekly wage of employee] x [Weeks](Years).

Severance packages currently being offered

1. Google

For their employees in the U.S.
  • Employees will be paid for the whole notice period (minimum 60 days).
  • Google will also accelerate the vesting of at least 16 weeks of GSUs and provide a severance compensation starting at 16 weeks of salary plus two weeks for each subsequent year spent working for Google.
  • Bonuses for 2022 and unused vacation time will be paid.
  • For individuals impacted, they will provide six months of medical treatment, assistance with finding a job, and immigration support.
Other countries
  • They will help employees outside of the U.S. in compliance with regional norms.

2. Amazon

In India
According to Amazon India, the layoffs will be conducted fairly and transparently, and all affected employees will be given at least five months' worth of pay as severance. The company has also stated that it will offer affected workers career transition support, including help with job searching, resume writing, and interview coaching.

3. Twitter

Previously, Musk stated that laid-off workers would be compensated with three months of severance. However, other Twitter employees said that when they received their severance packages, they were only given one month's pay in exchange for signing a non-disparagement pact and giving up their right to sue the business.

4. Facebook

Mark Zuckerberg provided an attractive severance payment for the 11,000 Facebook employees who were being let go, however, some didn’t take it. They received 16 weeks of pay in addition to an additional two weeks for each year of service without any cap. Hence, a person will receive about six months' worth of income after five years of employment at Meta.
According to the company's official blog, Meta Platform will continue to offer health insurance for six months to both employees and their dependents and three months of career support from an outside vendor, which includes "early access to unpublished employment prospects."
Also, the terminated workers will be given restricted stock units that will vest on November 15. This indicates that they will be able to sell such shares.

5. Unacademy

This year up to February 2023, 350 people, or 10% of Unacademy's staff, were laid off. According to an email from CEO Gaurav Munjal, the laid-off workers will receive severance pay equal to their notice periods and an additional two months' salaries, an expedited one-year vesting period, health insurance coverage for another year, and committed placement and career support.

How can you negotiate a severance package?

Negotiating a severance package can be a complex and sensitive process, but there are several steps that employees can take to increase their chances of securing a more favorable package:

1. Understand the terms of the package:

Before entering into negotiations, it's essential to carefully review the terms of the severance package and understand what is being offered. This includes details about the amount of severance pay, the duration of health insurance benefits, and any other perks or benefits that may be included.
Prepare your supporting documentation and research for your demands. Consult a knowledgeable employment lawyer whenever you have specific questions to ensure you know your rights. A well-organized presentation can make a difference.

2. Identify your goals and needs

It's vital to clearly understand your financial needs and goals and what you hope to achieve through the negotiation process. For example, you may need to negotiate for a larger severance payment if you have significant expenses or obligations.
Asking for higher compensation or other perks like extended health coverage is nothing to be afraid of. For instance, you might learn that a company would pay your health insurance costs but cannot offer you a higher salary. That can give you the breathing room you need in your spending plan.

3. Consider seeking legal advice

It may be helpful to consult with an employment attorney to understand your rights and options and to get guidance on negotiating a severance effectively.

4. Make a compelling case

To negotiate a severance package, you must make a persuasive case for why you deserve more. This may include highlighting your contributions to the company, your length of service, or your unique skills and experience.
Keep a record of every discussion and agreement you have with your employer. Save copies of the severance package and any other correspondence that took place throughout the bargaining process. Only consent to something being finalized if it is in writing.

5. Be open to compromise

Negotiation is a give-and-take process, and it's essential to be available for settlement. Consider what aspects of the package are most important to you, and be willing to make concessions in other areas.

6. Be professional and courteous

It's essential to approach the negotiation process professionally and courteously. Avoid making demands or threats, and instead, focus on presenting a compelling case for why you deserve a better package.
Ultimately, the success of your negotiation of severance will depend on various factors, including the strength of your case, the flexibility of the employer, and the more extensive economic and industry conditions. Taking a strategic and thoughtful approach can increase your chances of securing a more favorable severance package.
In some cases, you may negotiate a severance package for a larger or more comprehensive severance package. This may be particularly true in mass layoffs or other large-scale terminations, where the employer may be willing to offer more generous packages to avoid negative publicity or legal action. However, negotiating a severance package can be complex and may require the assistance of a legal or financial professional.

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