Severance Pay Calculator
Estimate severance pay by multiplying weekly salary by years of service and the number of severance weeks earned per year. Use this when offboarding employees or reviewing separation agreements.
About this calculator
Severance pay is a lump-sum or structured payment given to an employee upon termination, typically calculated based on tenure and salary level. The formula used here is: Severance Pay = weekly_salary × years_of_service × weeks_per_year. The 'weeks per year of service' factor is the policy-defined number of severance weeks an employee earns for each year worked — commonly 1 or 2 weeks per year. For example, a company offering 2 weeks' severance per year of service to an employee with 5 years of tenure would multiply their weekly salary by 10. Severance policies vary by company, industry, and jurisdiction; this calculator applies a straightforward linear model. More complex policies may cap total weeks, include bonuses, or differentiate by employee level. Always confirm the applicable policy or legal requirements before finalizing any severance agreement.
How to use
An employee earns $1,200 per week and has 8 years of service. The company policy provides 2 weeks of severance pay per year of service. Enter 1200 as Weekly Salary, 8 as Years of Service, and 2 as Weeks per Year of Service. The calculator computes: Severance Pay = 1,200 × 8 × 2 = $19,200. This is the gross severance amount before taxes. Note that severance is generally taxable income, so the employee's net amount will be lower depending on their tax bracket and jurisdiction.
Frequently asked questions
How is severance pay calculated based on years of service?
The standard severance formula multiplies the employee's weekly salary by their years of service and by the number of severance weeks the company grants per year. For instance, if a policy awards 1 week per year and the employee worked 6 years at $900/week, severance equals $5,400. Some companies use a tiered structure where longer-tenured employees receive more weeks per year. It is important to clarify whether 'years of service' is calculated in full years only or includes partial years, as this significantly affects the final amount.
Is severance pay required by law in the United States?
Under federal law in the United States, severance pay is not legally required — it is a matter of company policy or negotiation. However, certain situations may trigger obligations, such as mass layoffs covered by the WARN Act, contractual agreements, or state-specific statutes. Some states have additional protections for workers in specific industries. Even where not legally required, offering severance is common practice to reduce wrongful termination litigation risk and maintain employer brand reputation during layoffs.
What factors can increase or decrease a severance pay calculation?
The main factors are the weekly salary, years of service, and the company's weeks-per-year rate. Higher-paid employees and those with longer tenure naturally receive more. Some policies cap total severance weeks — for example, at 26 weeks — regardless of tenure, which limits payouts for very long-tenured employees. Additional components like accrued vacation payouts, COBRA continuation coverage, or outplacement services may supplement the base calculation but are not included in this simplified formula. Always review the full separation agreement for all components.