Losing a job due to layoffs is never easy. But while it’s natural to focus on what’s next, there's one important step you shouldn’t skip before walking away: Negotiating a severance package, which can help soften the financial blow.
Employers typically offer a severance package to provide financial support and benefits after your job ends due to layoffs. It might include a lump sum payment, extended health coverage, or even help with your next job search. While severance packages are often seen as fixed offers, what many people don't realize is that they can be negotiated.
In this article, we'll explain how to negotiate severance—including what to ask for, how to approach the conversation, and key tips to help you walk away with the best possible package.
Understanding severance packages: What’s typically included
Not all severance packages are the same. While some companies have standard policies, others offer severance on a case-by-case basis, which means there’s room for negotiation. To get the best deal, you first need to understand what’s on the table. Here’s a breakdown of what’s typically included in termination package negotiations and what you should pay attention to.
Severance pay: How it’s calculated
The most important part of any severance package negotiation is the payout. Companies calculate severance pay based on factors like:
- Tenure: The longer you’ve worked for a company, the more severance you might receive. A common formula is one to two weeks of pay per year of service, though higher-level employees may get more.
- Salary and role level: Senior executives and managers often receive larger severance pay due to leadership responsibilities or contractual agreements.
- Company policies and precedents: Some companies have set severance policies, while others decide based on past termination package negotiations with employees in similar roles.
Before accepting any offer, research your company’s past severance agreements (if possible) and compare them to industry standards.
Payout structure: Lump sum vs. salary continuation
Severance pay can be paid in two ways:
- Lump sum: You get the entire payout at once. This gives you immediate financial flexibility but could push you into a higher tax bracket.
- Salary continuation: You receive regular paychecks for a set period, sometimes with continued benefits. This can help maintain cash flow and keep health insurance active longer.
Which is better? It depends. If you need stability and benefits, salary continuation might be best. If you prefer a clean break and a large payout upfront, a lump sum could be the way to go.
Health insurance continuation: COBRA vs. employer-sponsored coverage
Losing your job could mean losing health insurance, but negotiating severance can help keep you covered longer. You may have two main options:
- Employer-sponsored coverage extension: Some companies allow you to stay on their plan for a set period, either at no cost, at the same rate you paid as an employee, or at full cost, depending on the severance agreement. Be sure to clarify the terms before signing.
- COBRA (Consolidated Omnibus Budget Reconciliation Act): A federal law that lets you continue using your current health insurance for up to 18 months—but at full cost, which can be expensive since you’re paying both your share and the employer’s share of the premium.
Unused PTO, vacation, and sick days
You might be entitled to a payout for unused paid time off (PTO), vacation days, or sick leave. Some states require companies to pay this out, while others leave it up to employer policy. Always check your state’s laws and negotiate severance to include any owed time off.
Retirement benefits and stock options
If you have a 401(k), pension, or stock options, ask about what happens to them after your employment ends:
- 401(k) and pension plans: Your 401(k) contributions are always yours, but employer matches depend on vesting rules. If you're fully vested, you keep the full amount, but if your plan has a graded vesting (you earn a percentage of the match over time) or cliff vesting (you get 0% until you hit a set number of years), you might lose unvested funds if you leave too soon. If you're close to a vesting milestone, you could try to negotiate a severance agreement that extends your employment date.
- Stock options: Like retirement plans, stock options often come with vesting schedules, Some severance agreements allow extra time to exercise vested options, so be sure to review the deadlines and terms carefully before your last day. If you’re close to a vesting milestone, you might be able to negotiate for accelerated vesting or an extended exercise window.
Outplacement services: Career coaching or job placement assistance
Some companies offer outplacement services to help you find your next job. This could include resume and interview coaching, job placement assistance, and networking support. Even if your employer doesn’t include this automatically, you can ask for it as part of your severance package negotiation—especially if you’re in a highly competitive industry.
Non-compete and confidentiality clauses
Your severance agreement may include restrictions that can affect your future job prospects:
- Non-compete clauses: These can limit where you can work next, often for months or years after you leave. You might be able to negotiate severance by asking for a shorter duration, a narrower scope, or even a financial trade-off in exchange for agreeing to it.
- Confidentiality agreements: Some agreements prevent you from discussing company details, which could impact networking or future job negotiations.
Can you negotiate a severance package?
Many employees assume that severance packages are set in stone, but in reality, severance package negotiation is frequently possible when you’re losing your job due to layoffs, forced resignations, or company restructuring.
While some companies have strict termination package negotiation policies, many employers offer severance on a case-by-case basis, especially for higher-level roles and long tenures.
Let’s take a closer look at some of these specific cases:
- Layoffs or downsizing: Companies may be more flexible to avoid bad press or legal issues.
- Forced resignations: If you're being pushed out, you may have leverage in negotiating an exit package.
- Contract violations: If your employer has breached your contract, you may be able to negotiate severance pay as compensation.
- Job loss due to company restructuring: If your role is being eliminated, you can argue for a more favorable severance agreement negotiation.
How to negotiate a severance package: Your step-by-step guide
Negotiating severance pay requires a strategic approach. Instead of reacting emotionally, take a step back, assess your situation, and build a case for better terms.
“The strongest position in severance negotiations comes from knowledge,” says employment lawyer Edward Hones, founder of Hones Law. “Knowing your rights, understanding leverage points, and strategically presenting your case can lead to significantly better outcomes.”
1. Pause before signing anything
It’s natural to feel pressure to sign a severance agreement negotiation on the spot, but resist the urge. Most companies allow time to review the offer—usually a week or more. Use this window to evaluate your options and consult with professionals if needed.
“One of the biggest legal risks employees face when negotiating severance is unknowingly waiving critical rights, such as claims related to discrimination, wrongful termination, or unpaid wages,” Hones says. “Severance agreements often include broad release clauses that protect employers from future lawsuits, so employees should fully understand what they are giving up before signing.”
2. Review your employment agreement
Before entering severance package negotiations, revisit your original contract. Look for clauses related to severance, non-competes, or benefits to understand what’s already in place and what gaps you might be able to negotiate.
3. Understand your leverage
Your ability to negotiate severance pay depends on factors like tenure and past performance, the company’s financial situation, and whether there are potential legal risks for your employer (wrongful termination, discrimination, etc.)
“A key mistake employees make is assuming the initial offer is final,” Hones says. “In reality, companies often have room to negotiate, especially if an employee can present a compelling case.” If you were a high performer or the company wants a smooth transition, you may have more leverage in negotiating a severance package than you think.
4. Determine what matters most
Instead of asking for additional payments, focus on what benefits you the most. “Asking for specifics, such as additional pay, continued health benefits, or outplacement services, can be more effective than broadly requesting more money,” Hones says. Think of your current situation and the outlook for the following months before making a decision.
5. Consult an expert
If your severance agreement includes a non-compete clause or a broad legal release, consider consulting an employment lawyer to ensure you’re not giving up key rights. A financial advisor can also help you understand tax implications and payout structures.
6. Prepare your counteroffer
When preparing your counteroffer severance package, try to create a story that shows how it will be beneficial not only for you, but also for the company.
“One way to frame requests as a win-win is by emphasizing long-term benefits for both sides, such as agreeing to a non-disparagement clause or offering to assist with a smooth transition in exchange for better terms,” Hones says.
For example, you might offer to stay on for an extra two weeks to wrap up projects in exchange for a higher severance package.
7. Get everything in writing
Once you reach an agreement, make sure the final terms are documented. A verbal promise means nothing if it’s not in writing. Ensure all agreed-upon benefits, payouts, and conditions are clearly outlined in the final severance package.
Bonus tips for unique situations
Not all severance negotiations follow the same playbook. Your approach may vary depending on whether you're being fired, laid off, or leaving voluntarily. Understanding the nuances of each situation can help you get a better result.
If you’re being fired vs. laid off
Layoffs typically come with standardized severance packages, but that doesn't mean they’re set in stone. If you’re laid off, you may have more room to negotiate based on tenure, performance, or company financials.
On the other hand, if you’re fired, severance is far less likely—but if you have a strong track record or potential legal claims (such as wrongful termination), you may have leverage to negotiate.
If you’re resigning due to a hostile work environment
Employers typically don’t offer severance to employees who resign, but if you're leaving due to a toxic or hostile work environment, you might be able to negotiate a severance package if you can demonstrate that your working conditions were untenable.
This could include evidence of harassment, discrimination, or other violations of labor laws. Consulting with an employment lawyer can help you determine if you have grounds for severance package negotiation.
Even if you didn’t face a toxic work environment, you can still try to negotiate. Employers may be willing to offer severance in exchange for knowledge transfer, transition assistance, or a non-disparagement agreement. If you're in a critical role, you may have more leverage than you think.
Severance negotiation for executives
For executives and senior-level employees, severance negotiations often involve more than just pay. Stock options, bonuses, and non-compete agreements can all come into play. Because executive severance packages tend to be more complex, working with legal counsel or a financial advisor can help you maximize your exit package.
When the company refuses to negotiate
“If a company refuses to negotiate severance, employees should review whether they have leverage, such as potential legal claims or contractual rights, before deciding on their next steps,” Hones says. “Legal counsel can help assess their options.”
How to negotiate severance: Examples of what to say
Having the right language can make all the difference. Here are a few phrases to help structure your requests:
- “I’d like to discuss some adjustments to the severance terms to better reflect my contributions to the company.”
- “Given my tenure and performance, I believe an extension of benefits or an increased payout would be fair.”
- “To help with the transition, I’d be willing to [offer assistance, sign a non-disparagement clause, etc.] in exchange for additional severance.”
Common employer tactics and how to respond
Employers may use various tactics to limit negotiations, such as:
- “This is our standard package.” Respond with: “I understand, but given my situation and extensive contributions throughout all these years, I’d like to explore adjustments that are fair for both sides.”
- “You need to sign this quickly.” Counter with: “I appreciate the offer, and I’d like to take the necessary time to review it properly.” (Hones says that a big mistake is not reviewing the agreement in detail and not consulting an employment lawyer.)
- “We don’t negotiate severance.” Ask: “Has there been any flexibility in similar cases before? I’d like to discuss options that work for both of us.”
Don’t be afraid to negotiate
Negotiating a severance package isn't just about securing extra pay—it’s about setting yourself up for your next chapter. A well-structured severance package negotiation can give you financial stability and even career support while you plan your next move. That’s why taking the time to negotiate severance can make a huge difference in your transition.
Remember: The best package is one that meets your specific needs. So don’t be afraid to ask for what you deserve. Your next opportunity is waiting, and a strong severance negotiation can help you get there.
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FAQs
How to calculate severance pay?
Severance pay is typically calculated based on your length of service, salary, and company policies. A common formula is one to two weeks of pay per year of service, though some employers offer more, especially for senior roles. Your package may also include bonuses, unused PTO, and continued benefits. Check your employment contract or company handbook to see if specific severance terms apply.
“How much severance should I negotiate?”
It depends on your tenure, role, and the company's financial situation. A good rule of thumb is to start by asking for more than the initial offer—companies often have room to negotiate. Beyond salary, consider negotiating extended health benefits, outplacement services, or a payout for unused vacation days. Framing your requests as a win-win for both you and the company can improve your chances of success.
What to say when negotiating severance?
Keep your tone professional and constructive. Start by thanking your employer for the offer, then make a case for why you deserve better terms. You can say: “I appreciate the severance package offered, and I’d like to discuss a few adjustments to better reflect my contributions and tenure. Given my [number of years] years of service and [specific accomplishments], I’d like to explore increasing the severance pay and extending benefits coverage. Is there room to adjust these terms?” Emphasizing fairness and flexibility can convince your employer to consider your requests.
Is it better to take a lump sum severance?
A lump sum severance can provide immediate financial security, but it may also have tax implications, as receiving a large payout at once could push you into a higher tax bracket. Some companies offer salary continuation instead, spreading payments over several months, which might help reduce your immediate tax burden. Consider your financial needs and tax situation before deciding.