Having your employment end can be a significant blow, not just financially. Your confidence can take a hit, your anxiety about the future can increase, and you may feel tempted to accept the first severance offer you receive—just to secure some stability.
Severance pay or severance packages refer to payments and/or benefits that you receive from your employer after your employment is terminated. Not all companies offer severance pay, as it's not mandated by the Fair Labor Standards Act (FLSA), but state laws do vary.
What many employees don't realise is that most employers expect some level of negotiation of a severance package.
Severance negotiations are a vital part of ensuring you receive the severance pay that reflects your value and accurately compensates you for your length of service. We'll go into the best ways you can prepare to negotiate your severance, including some top strategies and tactics.
Once exchanged and signed, severance packages are legally binding contracts between an employee and employer upon termination of their employment.
What's included in a severance package is unique to each employee, but typically includes:
Severance pay (often 1-2 weeks of salary per year of service)
Continued health insurance
Continued use of company equipment
Payout for unused vacation days
Job search assistance (outplacement)
Your company may also offer some discretionary components to its severance package, such as:
Bonus payments or prorated bonuses
Accelerated stock vesting or extended option exercise periods
Waiving non-compete agreements or other clauses
Most of what's included in a severance package is discretionary, meaning there's usually room to negotiate. Just remember that companies can offer these agreements in exchange for you signing a release waiving legal claims against them.
There are a few crucial steps you can take to set your negotiations up for success. As with any negotiation, you'll be more likely to secure your desired outcome if you've put in the preparation.
This should be your first step once your employer has notified you of your termination. Check to see if your employment contract contains specific clauses regarding severance, including how your severance pay will be calculated and any additional benefits that might be included.
It's a good idea to make sure the amount specified aligns with any federal or state laws.
Knowing the market rate for your experience, role, and industry will help you determine whether the severance offer was fair and gives you the leverage needed to negotiate for more. Without knowing the industry standard, you run the risk of accepting a lowball first offer.
Websites like Glassdoor or Salary.com, along with social media sites like LinkedIn, can give you data on your industry.
You want your negotiation to be as factual as possible. As well as compiling data on industry standards, knowing exactly what you've contributed to the company and how this has added value to the business is one of the best ways to demonstrate value. Sharing these insights will make any requests for more seem researched and reasonable.
Conduct a review of your current financial situation and what you'll need to prioritize for the future. Do you need higher severance pay? Continuation of health insurance? Access to the office equipment? Determine what you need going forward and how the severance offer can be adjusted to meet your needs and priorities.
If you're struggling to understand your employment contract or severance offer—don't panic. You can get in touch with an employment lawyer to translate the jargon, identify any potential legal claims (including wrongful termination), and discuss wage theft protections.
Keep in mind that you'll need to pay out of pocket for their services, which can range from hourly rates to a flat fee.
Almost every element of your severance can be negotiated. Don't fall into the trap of thinking that whatever is placed in front of you must be signed. Take your time to consider each element and decide what the best outcome for you is.
How much severance pay you're entitled to and how you receive this is one of the biggest elements to consider. Employees in more senior roles or who have worked at the company for longer periods are likely to have higher severances and more benefits.
Calculate how much severance pay is fair based on industry standards, your job role, and your years of service.
Once you've calculated how much severance pay is fair, consider how you'd like to receive it: would you prefer continued payments (which can also include a continuation of insurance coverage) or a lump sum?
A lump sum payment is beneficial for those wanting flexibility and immediate access to the money, whereas those seeking stability and continued benefits may prefer salary continuation.
One of the most stressful aspects of losing your job is the potential loss of your health insurance. Negotiating your severance can help ensure you're covered for longer after your employment is terminated.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows you to continue using your employer's health insurance for up to 18 months, but at full cost. This can be very expensive as you'll be paying your share and your employer's share.
Another option is to negotiate for employer-sponsored coverage. You may be able to stay on an employer's plan at no cost, or at the continued cost you were paying as an employee.
Don't overlook other benefits and focus solely on monetary compensation. Consider negotiating for stock options, a continuation of or early payout of your 401(k), or additional compensation.
For example, some packages include upcoming bonuses or accelerated vesting of equity. You might also be able to negotiate keeping company equipment, such as a laptop or phone.
Outplacement services can play a critical role in finding your next position. These employer-funded resources can include:
Networking opportunities
Resume writing classes
Career coaching
Interview prep
Job search strategies
Negotiating for these services can help ease the blow of your employment termination by positioning you to quickly find a new role.
Non-compete and non-solicitation clauses can be buried in fine print, so be sure to verify whether or not they're included in your severance contract. These clauses can prevent you from working for competitors and narrow down your options for new employment.
You may also encounter a confidentiality agreement or non-disparagement agreement, which prevents you from disclosing sensitive information or making negative or damaging claims about your former employer.
These clauses are supposed to be 'reasonable'—taking into account your job level and duties—but it's still worth negotiating if they significantly impact your future job prospects and limit opportunities with future employers. Working with an employment lawyer is one of the best ways to uncover hidden non-compete clauses.
Negotiating your severance might feel intimidating, but there are a few key strategies that'll make the process easier and help you achieve a good outcome.
Arriving at the negotiation table with no clear insight into what you'd like changed in your severance package isn't likely to lead to the best result. You need to have an idea of what specifically you'd like adjusted with solid reasoning to support the claim.
Lead with your value or contributions and remind them of specific wins, projects, or revenue you generated. Use objective data such as industry benchmarks and quantify your requests clearly.
For example, ask for "six months' salary" rather than "more money".
You may feel angry, hurt, or betrayed by the termination—this is normal and valid. However, these emotions should be processed with friends, family, or even a therapist, and not your employer. Bringing extreme emotions into a negotiation discussion is likely to hurt your case.
Remind yourself: this is a business transaction, even if it feels deeply personal.
Do you have any legal claims (hostile work environment, for example, or contract violations)? Can you leverage a long tenure? Will there be a risk of negative publicity?
Understanding what your leverage is is vital for any successful negotiation and even more critical for a severance negotiation. Evidence of wrongful termination, wage theft, or unpaid wages provides significant leverage.
Build your case professionally by documenting your employment history and contributions carefully, plus any research you've done into industry standards.
Quick tactics:
Start higher than your minimum acceptable outcome, so you have room to compromise
Bundle your requests: if they can't offer more money, ask for extended benefits
Get everything in writing as you go, including verbal agreements
Consider any special considerations. If you're over 40, you have extra protections under the ADEA
Making mistakes when negotiating severance is common, but it can be costly. Keep these DO NOTS in mind when you enter into the negotiation process:
Do not sign a severance agreement too quickly. Read the agreement carefully and identify whether you need to negotiate severance pay, ask for extended benefits, or seek legal counsel.
Do not burn bridges with your current employer. This could impact your severance package or future job prospects if they don't provide a good reference.
Do not underestimate tax implications. If you receive a large lump sum, it could push you into a higher tax bracket.
Do not overlook other benefits in favor of monetary compensation. Of course, money is important, but take into account how you could be impacted by hidden clauses or losing benefits.
Do not lose your professionalism. Whether you're upset at the severance or suffering negotiation anxiety, keep your emotions in check throughout the process and approach the negotiation with a calm mindset and professional manner.
Negotiating your severance can soften any period of unemployment after your termination ends and, alongside the financial benefits, can provide additional benefits such as continued health coverage.
Plus, employers expect severance negotiations.
If you want to negotiate like a professional, why not discover how Scotwork can help? With 50+ years of expertise and experience, Scotwork's negotiation training helps improve your outcomes with tailored development plans and actionable insights.
