Being laid off presents a lot of uncertainty, but knowing what comes next can help guide your path forward. To help you through this journey we have created this resource to help you. This guide covers the basics of severance packages, including questions regarding unemployment eligibility.

What is a severance package?

A severance package is an agreement between yourself and your soon-to-be former employer. The severance package typically consists of several key components including:

Severance Pay

This is usually a lump sum or a payment plan in installments paid by a former employer to help financially support the employee during this period of transition. The amount paid in severance is meant to help keep the employee afloat until they can find new employment opportunities.

Health Benefits, Insurance Coverage, and other benefits

Benefits are usually covered by state and federal law. These laws protect employees from being stuck without health benefits for months after their contract ends.

Non-Compete and Non-Solicitation Clauses

These are clauses that protect the company by blocking their former employees from working for competitors. These clauses also stop possible poaching of clients.

Claims Waivers

Another protection mechanism for companies is to include in their severance agreements waivers. These stop the possibility of former employees pursuing legal action against the employer and could put an end to any legal dispute you might have wanted to bring forward before it even begins.

How does severance pay work?

Severance pay is not legally mandated by federal law. As such there is no standard way in which it works. Usually, severance pay is calculated by looking at the amount the employee made, the years they were employed, and the circumstances surrounding the employee's departure. As this is an agreement that is entirely decided upon by the employer and the employee, it is also one of the areas where there can be a lot of variations based on your performance, employment contract, and overall negotiations.

Generally speaking, severance pay can be paid out as one lump sum or through several installments. To understand this better you can browse our database of severance packages and submit your own severance package for comparison.

Can you negotiate severance?

Severance packages are always up for negotiation. However, depending on your employer and the laws that govern the different aspects of the separation process, you might have more or less leeway to negotiate.

Generally speaking, one of the easiest parts to negotiate relates to your health insurance and benefits. This is because these are federally mandated with specific rules regarding the health benefits coverage time period. Still, you should negotiate the premiums to ensure that your former company is providing the best possible benefits for you. For example, you can negotiate additional months of healthcare or COBRA coverage, particularly if your employer is aware that you have an existing medical condition. Do not forget that mental health care should also be covered under this umbrella.

The non-compete and non-solicitation clauses should also be negotiated as you don't want to end up with a non-compete clause so wide in scope that it blocks you from finding future employment opportunities. Therefore, think smart and logically about the limitations that the company is trying to set and try to negotiate terms that will allow you to find new opportunities. If there is no flexibility on these terms, and depending on your industry, you can ask for what is known as "garden leave", where you are granted additional severance pay to cover living expenses while you are unemployed and waiting out the non-compete expiration.

Finally, the biggest part of your negotiation will usually relate to the severance pay. The fact that the layoff pay is not mandated by federal law means that there is a lot of space for you to negotiate and get a better deal for yourself. When you head into that negotiation you will need to know exactly what the pay would be according to your company's severance policy, your employment contract, and finally your key performance indicators and performance reviews during your time of employment.

Having a clear idea of everything relating to your pay and bonuses will allow you to have better talking points and thus bring your severance pay up, without leaving anything on the table.

Can you collect unemployment if you get a severance package?

For most people, the severance package can help balance their budget for a few weeks or months. Unemployment benefits are another way of helping those without work. Unemployment laws are generally dependent on the state you are employed in, but may also be based in part on where the company is legally registered.

In New York for example you could be eligible to receive unemployment benefits if you receive your severance pay 30 days after your last day of employment, but not before. In Massachusetts, you may only be eligible for unemployment benefits after receiving severance, termination, or dismissal pay if you also sign a release of claims agreement. Knowing the rules of your state is crucial for your negotiations, so you can strategize to ask for a result that's most beneficial for your specific situation, as you don't want to miss out on unemployment benefits later on.

It is also worth noting that in some states you can apply for unemployment benefits before you receive your compensation package. Knowing the timeframe for applying in your state can be incredibly important.

Final Thoughts

When it comes to severance packages, the first package offered always leaves space for improvement. Do your research thoroughly and ask for a meeting to negotiate better terms. This will help you benefit from the maximum compensation you deserve. More importantly, by knowing all the laws governing your severance package, you can be prepared for your negotiations.

Some severance packages might make you ineligible to receive unemployment benefits. As such, know ahead of time your state's laws and negotiate based on those. And of course, don't forget to upload your severance offer to help you and the rest of the community understand if it's really fair. This will ensure you get the maximum monetary help during the months you are unemployed.

If you have any suggestions for additional questions to cover, please contact us. Good luck!