How Long Will Your Severance Last?

Most people ask whether their severance is fair. The more useful question is how long it actually lasts. A 12-week package sounds like three months of safety. Once you subtract tax, add back health insurance, and divide by what you really spend each month, it is usually closer to two and a half. Here is the arithmetic employers do not put in the letter.

Your severance is a number. Your runway is a timeline. Those are different things, and confusing them is how people end up accepting a bad offer in month three with two weeks of money left.

The formula employers actually use

In the United States, there is no federal law requiring private employers to pay severance at all. It exists because companies want two things: a signed release of legal claims, and a reputation that keeps future candidates willing to join. That is why the number is negotiable and why it varies so much.

The dominant convention is one to two weeks of base pay per year of service:

Two structures dominate in practice. Many employers use a flat formula (weeks per year of service, often with a floor of two to four weeks for short tenure and a cap somewhere between 16 and 26 weeks). Others use a hybrid: a guaranteed base of, say, eight weeks, plus one week for every year served. The hybrid is increasingly common because it gives newer employees something meaningful without abandoning tenure as a reward.

Seniority moves the number more than anything else. Individual contributors generally land in the four-to-ten-week range. Managers see twelve to sixteen. Directors and VPs fifteen to twenty-five. Executive packages are usually written into an employment agreement months or years before the layoff, and can run from six months to two years of base salary.

Step 1: Find your net, not your gross

Severance is taxed as ordinary wages. Employers commonly withhold at the 22% federal supplemental wage rate, plus 7.65% for FICA and whatever your state charges. For a lot of people that totals roughly 30% to 35%.

There is a trap here worth knowing about. The 22% flat rate can under-withhold if your total annual income pushes you into a higher bracket. Severance can look fully taxed in the moment and still generate a bill at filing time. If your severance lands in the same tax year as several months of salary, budget for that possibility rather than being surprised by it.

Use your own marginal rate if you know it. The point is not the precise percentage — it is that the number on the letter is not the number you can spend.

Step 2: Add back the costs you no longer share

Your employer was quietly paying a large share of your total compensation in the form of benefits. Losing the job does not remove those costs. It transfers them to you.

• Health insurance. COBRA typically runs $500 to $2,000 per month for individual coverage, because you now pay the full premium instead of the subsidized portion. A marketplace plan may be cheaper — check both, and check whether you qualify for subsidies based on your reduced income. This alone can add $6,000 to your annual burn rate.
• Unused PTO. Often paid out separately from severance, and legally required in many states. Confirm it is added to your severance rather than folded into it. This is a common place where packages quietly shrink.
• Bonus and commission proration. Check whether your plan documents contain a clause requiring you to be employed on the payment date. In a layoff, that clause is frequently negotiable.
• Equity. Unvested shares normally lapse. Acceleration, or an extended exercise window, is negotiable — especially if you are close to a vesting cliff.
• Job search costs. Travel to interviews, a portfolio refresh, courses, and in some cases outplacement you are paying for yourself. Modest, but not zero.

Step 3: Divide by your real monthly burn

Now the part that decides everything. Your severance runway is not measured in weeks of salary — it is measured in months of expenses:

A worked example

Take the case from earlier: $80,000 salary, six years of service, 12 weeks of severance.

Twelve weeks feels like three months. It funds two and a half to three months of actual survival, and that is before touching savings. If the average mid-level job search runs three to six months, this person is short by somewhere between two weeks and three and a half months — and that gap has to come out of savings or debt.

What your number actually means

Once you have a runway figure, interpret it against your job market rather than against a generic rule of thumb:

Notice what runway actually buys. It is not comfort — it is the ability to say no. A short runway forces you to accept the first offer that clears your bills, which often means a pay cut you then carry for years. That is the real cost of a thin buffer, and it is far larger than the interest you might earn by investing the money instead.

Where you have leverage

Severance is negotiable in most cases, and knowing the mechanics changes what you can ask for:

• Take the review period. Many severance agreements give you at least 21 days to consider, and 45 days when the layoff is part of a group termination. Signing on the day you receive it gives away the only leverage you have.
• Point to the company's own policy. If the handbook says "up to two weeks per year," ask how your number was calculated. Many initial offers land at the conservative end simply because nobody pushed back.
• Ask for benefits instead of cash. Continued health coverage is often easier for an employer to approve than additional cash, and it maps directly onto your burn rate. Three months of COBRA can be worth more than an extra two weeks of pay once tax is applied.
• Know the notice requirement. The federal WARN Act requires employers with 100 or more employees to give 60 days' advance notice of plant closings affecting 50+ workers, or mass layoffs of 500+. Where notice was not given properly, employees may be owed up to 60 days of pay and benefits. A handful of states run their own versions with lower thresholds — New Jersey is notable for mandating one week of severance per year of service for qualifying mass layoffs.
• Get the reference in writing. Agreed reference language costs the employer nothing and is worth real money to you. Ask for it.

What to do with the money while you search

During a job search, liquidity beats optimization. Your severance is not an investment — it is the resource that lets you hold out for a decent offer. Keeping it in cash for the duration of the search is not laziness; it is the correct trade. You are buying optionality with a small amount of forgone interest, and optionality is exactly what a short runway takes away.

Two practical rules. First, do not pay down debt with severance until you have signed a new offer — the interest you save is smaller than the risk of running out of cash. Second, recalculate your runway every month. It changes as your spending changes, and the number in month two is more accurate than the one in week one.

If your number came out short

Most people who run this math find a smaller number than they expected. That is useful, not fatal. The levers, roughly in order of speed:

• Cut fixed costs immediately — rent and car payments dominate the calculation, and both can sometimes be renegotiated or restructured.
• Check whether you qualify for subsidized marketplace coverage, which can cut the COBRA line dramatically.
• Line up any income, even partial: contract work, consulting, or freelance projects extend the runway while you search for the right full-time role.
• Negotiate the severance itself, using the review period you are entitled to.

Frequently asked questions