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Generally, you'll get one week to four weeks of pay per year of service, but it is common for employers to pay out two weeks of pay for each year at the company. Of course, every company differs in calculating total severance pay.

Severance pay is the compensation and/or benefits an employer provides to an employee after employment is over. Severance packages may include extended benefits, such as health insurance and outplacement assistance to help an employee secure a new position.

What Should You Do with Your Severance Pay? Do not immediately spend it! ... Consider your new financial situation. ... Save six months of expenses. ... Invest in yourself. ... Pay down debts. ... Give yourself permission to think of big ideas.

Older, more conservative workers may want to leave the severance pay in cash or pay down debt. Younger workers can consider keeping the money in cash then fund college savings plans when they secure their next job.

Financial Difficulty A severance arrangement that is in writing in employment contracts can sometimes make a bad financial situation worse for a struggling company. If the company is trying to reduce payroll to avoid bankruptcy, the severance agreements may make layoffs a poor short-term financial solution.

A severance package might look very lucrative after your employer ends the employment. Most employees agree to these packages, thinking that it'll support them in the hard times while they'll get enough time to look for another job. However, it is not advised to agree to the severance right away.

Consider what other employees have received as a severance and consider how long you may be looking for other employment. Remember that you can negotiate benefits such as continued health insurance and assistance finding a new job in addition to severance payments.

A severance agreement is a legally enforceable agreement between you and your employer. You can negotiate it up front or upon exit.There is a risk in every severance negotiation that you may end up with what was originally offered, but you will not know until you make a written demand for more severance.

The general practice is to try to get four weeks of severance pay for each year worked. Middle managers and executives usually receive a higher amount. Some executives, for example, may receive pay for more than a year. If your lump-sum severance payment is considerable, it could push you into a higher tax bracket.

From a tax perspective, the IRS views traditional severance payments as supplemental wages because they are not a payment for services. Severance paid to employees in a lump sum, unrelated to state unemployment benefits, is taxable as wages for both income-tax withholding and FICA purposes.