The Severance Offer Decoder, Component by Component

You were laid off and handed a severance agreement, and you have a deadline. This is the lookup document for that moment: one row per component, so you can jump to the line you do not understand, learn what it is worth, whether it is fixed or negotiable, and the exact way it can quietly cost you. It is for anyone reading an offer already in front of them, not for building a counter from scratch. Read the row you need and leave.

What is actually in a severance agreement

A severance agreement is a bundle of separate deals wearing one signature line. There is usually cash, sometimes continued health coverage, a PTO payout, possibly a bonus reference and equity language, and, underneath all of it, a release: your promise not to sue in exchange for the money. Each piece is priced, taxed, and negotiated differently, and each has its own way of misleading you.

Treat the document as layers rather than a single number. The cash gets the attention, but the release is what the money buys, and the equity and unemployment mechanics are where the real dollars hide or leak.

The single most important habit before you read another line: file for unemployment immediately, even while receiving severance, and report the severance honestly on every claim. Filing does not commit you to anything, and it starts a clock you do not want to lose.

Cash severance: what it is worth and whether it moves

The cash line is one to two weeks of base pay per year of service, with two weeks treated as above-average. It scales with seniority, and it is the most negotiable part of the offer because the multiplier itself is entirely up to the employer unless a contract, union agreement, or state law says otherwise.

Bands below are rough benchmarks, not entitlements. Executive packages break the formula entirely and are negotiated as flat periods.

Two things quietly shrink this number. First, caps: 50% of companies cap the number of weeks they pay, with a median cap of 26 weeks at public companies and 12 weeks at private ones. A 20-year veteran at a private company on a two-week formula does not get 40 weeks; the cap eats the difference. Second, the base: most formulas use base salary only, so bonuses and commissions are excluded unless a written agreement says otherwise. If a recruiter quoted you total comp, the severance multiplier is running on a smaller number than you think.

There is a subtler trap in the cash line, and it comes from employment law rather than math. Under the OWBPA, the payment must be something you are not already entitled to. If the employer's standard policy requires four weeks of severance, paying exactly four weeks is not adequate consideration for a release of age claims. So when the offer matches your existing policy or handbook to the dollar, you may be releasing your right to sue in exchange for nothing extra. That is a reason to push the multiplier, not a formality.

Payment structure: the line that decides your unemployment

How the cash is paid, not the label on it, decides when you can collect unemployment, and the state agency makes that call, not your employer. This is the most misread component in the entire agreement.

There are three structures, and they behave very differently.

Salary continuation is the quiet cost most people miss. Emotionally you feel unemployed; legally you may still be on payroll, which prevents you from collecting unemployment until that final check clears. On a state maximum like New York's $504 per week, months of blocked benefits is real money.

Allocation language is the trap inside a lump sum. Phrases like "this payment represents eight weeks of salary," "paid through July 31," or "in lieu of notice" signal allocation, and a state may treat the payment as wages covering those specific weeks. An unallocated lump sum, linked to no period, usually leaves your benefits intact. Same dollar amount, opposite outcome, decided by one sentence of drafting.

COBRA and PTO: the benefits bridge and where it leaks

COBRA lets you keep your group health plan at your own cost for up to 18 months, and employers often cover the premium for one to six months after separation. The number to find is what you pay once any subsidy ends, because you then owe up to 102% of the plan's full cost.

Read your COBRA election notice for the exact premium and compare it to an ACA marketplace plan before you elect. You have at least 60 days from the later of coverage ending or receiving the notice to decide, and coverage is retroactive to the date it ended, so you can wait and elect only if you incur a claim. A generous-sounding "three months of COBRA" is worth roughly three times the individual monthly figure above, not the full 18 months, so price the gap you will cover yourself.

Accrued PTO is governed by state statute first, then by written policy. At least 19 states, including California, Colorado, Illinois, Massachusetts, and Nebraska, treat accrued vacation as earned wages and require payout at termination, and some prohibit use-it-or-lose-it policies outright. Where no statute exists, such as Texas, payout is required only if a written policy or agreement promises it, and a forfeiture clause can be enforceable. The same unused balance can be a mandatory payout in one state and legally forfeited in another. On the unemployment question, in most states a PTO cash-out does not delay benefits because it is viewed as money already earned, but confirm how your agreement allocates it.

The equity component, and why it can be worth more than the cash

Equity is the component people skim and later regret, because the deadlines are short and the dollar value at risk can exceed the entire cash multiple. For employees laid off shortly before a vesting cliff, well-negotiated equity treatment often beats the cash severance outright.

Three moves matter, and two of them cost the company nothing:

• Extending the post-termination exercise period (PTEP). The default is 90 days, and 82% of companies set a median window between 89 and 92 days. Asking to extend it to 7-10 years or until a liquidity event is a paper change that costs the company nothing.
• Accelerated vesting of unvested shares. Ask for acceleration of shares scheduled to vest within 3-12 months after termination. On a grant of 2,000 RSUs vesting over 24 months at $150 per share, six months of acceleration adds 500 shares worth $75,000, at zero cash cost to the company.
• Cash equivalents for unvested equity. Where acceleration is refused, ask for the cash value instead.

A longer option window is a paper change, yet it can be worth more than the entire cash severance.

The deadline trap is the trigger date. The 90-day clock starts at your last day of employment, not at the day you sign, and for incentive stock options (ISOs) the exercise must happen within three months of your last day to keep favorable tax treatment under IRC 422. Salary continuation can push your official termination date later, which quietly moves your exercise deadline with it. Find the termination date first; every equity deadline hangs off it.

The tax mechanics, and the withholding illusion

Severance is taxed as supplemental wages under IRS Publication 15, the same category as bonuses, commissions, and back pay. Your employer withholds federal income tax one of two ways, and the flat method applies a 22% rate on severance up to $1 million and a mandatory 37% on any amount above that. FICA also applies: 6.2% Social Security on wages up to $184,500 for 2026, plus 1.45% Medicare. The Supreme Court settled that FICA applies to severance in United States v. Quality Stores in 2014, so do not expect to escape it.

The illusion is that 22% is your tax bill. It is not; it is a withholding rate. Your actual tax is based on total annual income and your marginal bracket, so the flat 22% over-withholds for lower earners, who see it back as a refund, and under-withholds for high earners, who owe more at filing. Model your real bracket rather than trusting the check.

Note one myth to retire: a literal "double-taxation" from bundling PTO into the cash line is not an established tax mechanism. The real issue with bundling PTO into the cash figure is that it can change how the payment is allocated for unemployment and how it is withheld, not that the same dollar is taxed twice.

Fixed versus negotiable: what actually moves

Some components are effectively set and some are cheap concessions the employer can grant without a real cost. Knowing which is which tells you where to spend your one round of pushback.

The cash multiplier is discretionary but expensive, so it draws resistance. Legal terms in the release are discretionary too but rarely move without a lawyer flagging something unusual. The extended option window is the classic cheap concession: it costs the company nothing and can be worth the most to you. That asymmetry, plus the OWBPA consideration rule, is why the offer in front of you was templated at scale while individual pushback is comparatively rare.

The step-by-step: decoding an offer end to end

Work the offer in order. The sequence matters because unemployment filing and the OWBPA clock are both time-sensitive, and the equity deadline hangs off a date you have to find early.

Sources disagree on the exact ordering of filing for unemployment versus using the full review window. File early either way; the filing costs nothing and preserves benefit timing, while the review window governs when you actually sign.

Refolk was built to remove the friction of finding the right specialist fast. Rather than cold-searching directories, you can describe the exact person you need and get a shortlist. This is where Refolk earns its place: after decoding an offer with a real equity component or an age-claim release, the next move is a specialist, and the market for those specialists is thin.

How this goes wrong: the failure modes

Most severance mistakes are not made by people who ignored the offer; they are made by people who read it and drew the wrong conclusion. These are the false positives that cost the most, and what to check for each.

• "Severance won't affect unemployment." The false positive is assuming any lump sum is safe. Check: scan for allocation language. If the agreement says payments are "equivalent to eight weeks of salary," the state may treat it as wages for that period and delay benefits.
• Salary continuation feels like unemployment. Emotionally you feel unemployed; legally you may still be on payroll. Check: read whether you remain on payroll. If you do, benefits are likely blocked until the last check.
• "22% withholding is my final tax bill." The false positive is assuming the check is fully taxed. Check: your actual tax is based on total annual income, so 22% often over-withholds low earners and under-withholds high earners.
• "I have 90 days to exercise." Check the trigger date. The clock starts at termination, not at signing, and salary continuation can move that date later.
• Signing fast to get the money. For workers 40 and older this can forfeit the review window, and revoking a signed waiver typically forfeits the severance itself. Check: use the full window before signing rather than after.
• Assuming PTO is always paid out. In no-statute states, policy controls and a written forfeiture clause can be enforceable. Check your handbook and your state, because Texas and California differ.
• Treating a "discretionary" or prorated bonus as guaranteed. Most cash formulas use base salary only. Check: bonuses and commissions are excluded unless a written agreement includes them.
• Accepting exactly the policy amount as the release price. Under OWBPA, matching existing policy may be inadequate consideration, meaning you release claims for nothing extra. Check: compare the offer to your written policy and handbook.

Before you respond: the pre-signature checklist

Run this before you sign, counter, or let the window close. Each item is a specific thing to verify, not a topic to think about.

If a component is unclear or the equity or release is material, get a specialist before the window closes. The support ecosystem is uneven, and knowing its shape helps you spend time where it counts.

Keeping this current

Three numbers in this decoder move over time, and each has a way to re-check it locally rather than trusting a stale figure. The federal supplemental withholding rate and the FICA wage base are set annually in IRS Publication 15, so confirm the current 22% flat rate and the Social Security wage base there before you model your tax. COBRA premiums track your specific plan, so the only reliable figure is the one on your election notice, not any national average. And PTO payout rules and unemployment allocation are state-administered, so verify against your own state's labor agency, because the same clause produces opposite outcomes across state lines.

The parts that do not move are the mechanics: allocation language delays benefits, salary continuation keeps you on payroll, the option clock starts at termination, and the OWBPA revocation window cannot be waived. Learn those, and you can decode any offer regardless of the year's numbers. When a figure in your offer surprises you, check the mechanism first, then the current value.