Severance Pay Calculator
Estimate your total compensation package based on length of service and company policy.
Base Severance Amount:
$0.00
Vacation Payout:
$0.00
Notice Period Pay:
$0.00
Estimated Total (Pre-Tax):
$0.00
Understanding How Severance Pay is Calculated
Severance pay is a compensation package offered by employers to employees who are terminated through no fault of their own, such as during layoffs or corporate restructuring. While not always legally required by federal law, it is often governed by employment contracts or company policy.
Key Factors in the Calculation
- Years of Service: Most companies use a formula based on how long you worked there. A common standard is 1 to 2 weeks of pay for every year of employment.
- Base Salary: Calculations are typically based on your gross (pre-tax) salary at the time of termination.
- Vacation Accrual: In many jurisdictions, employers are legally required to pay out any earned but unused vacation time.
- Notice Period: Some contracts require a "notice period." If the employer wants you to leave immediately, they may pay out the duration of that notice period in cash.
Example Calculation
Imagine an employee, Sarah, who has the following details:
- Annual Salary: $65,000
- Length of Service: 4 years
- Company Policy: 2 weeks of pay per year
- Unused Vacation: 5 days
Step 1: Find Weekly Pay. $65,000 / 52 weeks = $1,250 per week.
Step 2: Base Severance. 2 weeks × 4 years = 8 weeks. 8 weeks × $1,250 = $10,000.
Step 3: Vacation Payout. Daily rate ($65,000 / 260 work days) = $250. 5 days × $250 = $1,250.
Step 4: Total Package. $10,000 + $1,250 = $11,250 total.
Important Considerations
Remember that severance pay is usually considered taxable income. The "Gross" amount calculated above is what the company pays, but the "Net" amount you receive in your bank account will be lower after federal and state withholdings. Additionally, some severance agreements require you to sign a "release of claims," waiving your right to sue the company in exchange for the payment.