Severance Pay

Typical formula: 1-2 weeks per year of service, capped at 26 weeks. Often conditioned on signing a release of claims (waiving the right to sue). Tax: ordinary income subject to FICA, federal/state withholding — paid as supplemental wages (typically 22% federal flat or aggregate method). Severance does NOT extend health insurance — COBRA election starts at termination, but employers sometimes pay COBRA premiums for the severance period. Unemployment benefits: severance can delay or reduce UI in some states (CA, NJ, MA, ME, NY apply offset rules); other states pay UI immediately regardless. WARN Act requires 60 days notice for mass layoffs (50+ employees at one site) — severance is sometimes paid in lieu.