How Severance Pay Is Typically Calculated in 2026

No law sets the amount, but clear market norms do. Here are the formulas employers actually use and the add-ons that change the total.

The base formula

The market standard for rank-and-file layoffs is one week of base pay per year of service, with more generous employers offering two. Plans typically set a floor (often 2 to 4 weeks, so a one-year employee is not sent off with a single week) and a ceiling (often 26 weeks, sometimes 52). Tenure beyond the ceiling earns nothing extra under the formula, which is why 25-year employees at capped plans get the same as 13-year employees.

Some plans tier the rate: one week per year for the first 5 years, two weeks per year after. Others add seniority bonuses at 10, 15, or 20 years. Your employer's written severance plan (often an ERISA plan document) controls; ask HR for it, because managers sometimes describe the formula loosely and the document governs.

What counts as pay

The weekly rate is usually base salary only, excluding bonuses, commissions, and overtime unless the plan says otherwise. That distinction matters enormously for salespeople and hourly workers: a rep with a $70,000 base and $80,000 in commissions gets severance on the $70,000. Some plans use a trailing-12-month average of total cash compensation, which is far better for variable-pay workers; check which definition your plan uses.

PTO and vacation payout

Whether unused vacation is paid out depends on state law. States like California, Illinois, and Massachusetts treat accrued vacation as earned wages that must be paid at separation regardless of policy. Most other states allow use-it-or-lose-it policies, though many employers pay it out anyway. Sick leave is rarely paid out unless a state or local law requires it. If you are in a payout state, the PTO value can add several thousand dollars; if not, burning PTO before your last day may be the only way to capture it.

Bonuses and equity

Annual bonuses are usually pro-rated to the termination date if the plan or agreement provides for it; without a provision, you may forfeit the year's bonus entirely. Equity is governed by the grant agreements: unvested options and RSUs are typically forfeited at termination, though some packages accelerate vesting for a portion. Executives often negotiate single or double-trigger acceleration in their employment agreements long before any layoff.

Health coverage and outplacement

Employer-paid COBRA for 3 to 6 months is a common sweetener, worth thousands given that COBRA costs 102 percent of the full premium. Outplacement services (resume help, coaching) cost the employer a few thousand dollars and cost you nothing to accept. Some packages offer a lump sum in lieu of COBRA; compare it against actual marketplace or COBRA premiums before choosing.

Mini case: two employees, same company

Compare two workers laid off from the same company under a 2-weeks-per-year plan with a 4-week minimum and 26-week maximum. Ana has 3 years at $80,000: 6 weeks = $9,231. Ben has 20 years at $80,000: the formula gives 40 weeks but the cap cuts it to 26 weeks = $40,000. Ana's minimum did not bind (6 weeks exceeds the 4-week floor); Ben's ceiling cost him 14 weeks, or $21,538. Caps redistribute severance from the longest-tenured to the middle, which is worth knowing before you assume tenure always pays.

Sources: IRS Publication 15 (supplemental wage withholding); U.S. Department of Labor (WARN Act). Data current as of October 2026. Not tax or legal advice.

Frequently asked questions

What is the standard severance formula?

One to two weeks of base pay per year of service, typically with a minimum of 2 to 4 weeks and a maximum of 26 to 52 weeks.

Does severance include bonuses and commissions?

Usually the formula uses base salary only, unless the plan specifies total cash compensation. Check the plan document for the exact definition of pay.

Do I get paid for unused vacation when laid off?

It depends on your state. Some states require payout of accrued vacation as earned wages; others allow use-it-or-lose-it policies.

What happens to my stock options in a layoff?

Unvested equity is typically forfeited at termination unless your agreement provides for accelerated vesting. Vested options usually must be exercised within a short post-termination window.

How long does employer-paid COBRA usually last?

Three to six months is common in severance packages; federal COBRA continuation itself can run up to 18 months at 102% of the premium.