How to Calculate Severance Pay

After losing a job, the relationship with your employer may be strained. The last thing you probably want to do is stick around to have another conversation. But it's important to know you might be entitled to severance pay. Severance pay depends on your employment scenario, but if it's applicable, you should know what it is and how to calculate it.

What is severance pay?

According to United States Department of Labor...
'Severance pay is often granted to employees upon termination of employment. It is usually based on length of employment for which an employee is eligible upon termination. There is no requirement in the Fair Labor Standards Act (FLSA) for severance pay. Severance pay is a matter of agreement between an employee and an employee (or the employee's representative).

How to calculate severance pay

Severance pay can vary depending on the employee. It is important to consider these factors before calculating this form of payment:

• Salaried or hourly employment status
• Duration at given company
• Scenario for leaving
• Position within the company

Keep in mind you should contact a payroll tax professional when addressing a dismissal wage, but below is a typical calculation to give you an idea.

For hourly employees:

# of years with company X 1 week of regular pay = Severance pay total
If you typically make $1,000 per week and have worked at your company for 10 years, your severance pay would be $10,000 (10 years X $1,000 = $10,000)

For salaried employees:

# of years with company X 2 weeks of regular pay = Severance pay total
If your salary is $100,000 per year, that is $4,000 for two weeks (given the cap is 25 weeks). If you have been at the company for 10 years, your severance pay would be $40,000 ($4,000 X 10 years).

Remember severance pay is not always given; it is dependent on the scenario with your employer. If you are looking for an easy way to estimate severance paycheck out this worksheet: Severance Pay Estimation Worksheet.