Severance Pay Calculator (Weeks per Year of Service)

Is severance pay required by law?

Not under the federal Fair Labor Standards Act. The Department of Labor says severance pay is not required by the FLSA. It is offered when employment ends and is often tied to how long the employee worked, and its terms are an arrangement between the employer and the employee or the employee’s representative. In practice that means an employment contract, a union agreement, an employer severance plan or policy, or a separation agreement decides whether you get it and how much.

If an employer-sponsored plan promises severance and it is not paid, the Department of Labor’s Employee Benefits Security Administration can help. Some states have their own rules, so check your state labor department. If your agreement has a different formula from the one used here, use your agreement.

How is severance pay calculated?

A common formula is a number of weeks of pay for each year of service, such as two weeks for every year worked. The steps are: work out one week of pay (an annual salary divided by 52, or the hourly rate times the weekly hours), multiply the years of service by the weeks per year, then multiply the weeks by the weekly pay. A $78,000 salary is $1,500.00 a week. With 5 years and 6 months of service and two weeks per year, that is 11 weeks and $16,500.00.

Agreements differ on partial years. If only completed years count, the same 5.5 years is 5 years, 10 weeks and $15,000.00. Many also set a minimum number of weeks or a cap. With a 26-week cap, 20 years of service at two weeks a year (40 weeks) is limited to 26 weeks and $39,000.00. The calculator takes a minimum, a cap and a flat amount for these.

Is severance paid as a lump sum or over time?

Either can be agreed. A lump sum is one payment, often made with or soon after the final paycheck. Salary continuation pays the same weekly amount on the regular payroll schedule for the number of weeks the formula gives, so 11 weeks of severance would be paid over 11 weeks of paychecks. The total before tax is the same; what changes is when the money arrives and how it is withheld. The calculator shows the end date for salary continuation and the tax estimate for a lump sum.

How is severance pay taxed?

Severance is taxed as wages. The IRS lists severance pay among supplemental wages in Publication 15, and supplemental wages are subject to Social Security and Medicare tax whichever withholding method is used. A lump sum paid separately can have a flat 22% of federal income tax withheld. On $16,500.00, that is $3,630.00 of federal withholding, $1,023.00 of Social Security and $239.25 of Medicare, so about $11,607.75 is left before state tax.

• Supplemental wages over $1 million in a year are withheld at 37% on the excess.
• If the severance is combined with a regular paycheck, the aggregate method can apply, which depends on your W-4 and can be higher or lower than 22%.
• Social Security stops at the wage base ($184,500 for 2026); enter your wages so far to see the cap.
• The withholding is a prepayment. The final tax is settled on your return, and any extra withholding can come back as a refund.
• State income tax is extra in most states with an income tax.

Does the WARN Act require severance?

No, but it can require notice. The Worker Adjustment and Retraining Notification Act requires covered employers to give 60 days’ written notice before a plant closing or mass layoff. A covered employer has 100 or more employees, not counting part-time employees. A plant closing is a shutdown of a site or unit that causes job loss for 50 or more employees in a 30-day period, and a mass layoff is a job loss at a single site for at least 33% of the employees and at least 50, or for at least 500 employees.

An employer that breaks the notice rule can owe each affected employee back pay and benefits for each day of the violation, up to 60 days, reduced by wages paid in that period and by voluntary payments the employer was not required to make. That is a remedy for missing notice and is different from severance. There are exceptions that allow shorter notice, such as unforeseeable business circumstances. Ask the Department of Labor or a lawyer about a real case.

What else may be owed when employment ends?

Severance is separate from the wages already earned. Final wages for hours worked are owed, and some states also require payout of unused vacation or PTO and set a deadline for the final paycheck. The PTO payout calculator and its state table cover the first of these. Check your agreement and your state labor department for the rest, and read any separation agreement carefully before signing it.

Common severance calculation mistakes

Most mistakes come from assuming the formula instead of reading the agreement, or from forgetting tax and partial years.

• Assuming a standard formula when the agreement or plan sets its own.
• Counting part of a year when the agreement counts only completed years, or the reverse.
• Forgetting a minimum, a cap or a flat amount in the agreement.
• Using base pay when the agreement says to include bonuses or other pay.
• Treating the gross amount as take-home pay.
• Mixing up severance with unused PTO, which is a separate amount.