Severance Agreement FAQ

Here are some of the most commonly asked questions by employees when considering signing a severance agreement. 

Part of our Severance Agreement series: Overview · Severance Pay · COBRA After a Layoff · Non-Compete in Severance · Waiver & Release of Rights

Need step-by-step help? Severance Studio shows you what to push on, what to accept, and how to protect your money, benefits, and next job—without legal jargon.

Jump to: Severance Pay · Benefits & COBRA · Restrictions · Waivers & Rights

Severance Pay & Money

Will I receive severance pay, and how much?

Not everyone does. Companies aren’t legally required to offer severance unless you have an employment contract, union agreement, or company policy that guarantees it. Most offer it as a business decision — to reduce legal risk, soften morale hits, and protect their brand.

👉 Rule of thumb: The most common formula is one week of pay for every year of service. But executives, long-tenured employees, or people in industries like tech and finance may see more generous packages.

Action step: Pull your offer letter, employee handbook, and ask around (quietly) if you can — companies often have “precedent ranges” that guide severance offers.

Deeper dive: Get the full breakdown in Severance Pay — what’s negotiable, typical formulas, and leverage tips.

How much severance pay should I expect?

Severance is optional, not legally required, by your employer so the amount is negotiable and up to company policy. There, are, however, industry standards that are commonly used:

Think of it in three tiers:

• Baseline: One week per year worked (what many companies default to).
• Better: Two weeks per year, or capped at a few months (more generous employers).
• Negotiated: Higher-level roles can often push for months of pay, COBRA coverage, or lump sums.

The “right” number for you isn’t just about the math — it’s about leverage. If the company fears lawsuits, PR fallout, or losing trade secrets, you have more room to negotiate.

Action step: Compare your offer to these norms. If it’s below baseline, consider negotiating — especially if you’re being asked to sign restrictive terms.

How long does severance last — weeks/months relative to years worked?

Duration usually tracks your years of service — but employers love to cap it. For example, 20 years might not mean 20 weeks if company policy caps at 12.

👉 Legal cap: Severance can’t last longer than two years or exceed double your last year’s pay without being reclassified as a pension under IRS rules.

Action step: Don’t just look at the headline “12 weeks of severance” — check the math against your years of service, the cap, and the IRS boundaries.

Want a simple walkthrough? Get the Severance Studio videos and checklists to compare offers, spot red flags, and negotiate with confidence.

How are severance payments taxed (lump sum vs salary continuation)?

Taxes can take a surprising bite out of your package:

• Lump sum: Treated like a bonus at the IRS “supplemental rate.” That means heavier upfront withholding.
• Salary continuation: Withheld like a normal paycheck, often making net pay look steadier.

Neither option is “better” universally — it depends on your tax planning, other income, and whether you’d prefer cash now or a smoother payout later.

Action step: Ask payroll/HR to confirm how they’ll structure withholding. Then talk to a tax pro about whether lump sum vs continuation helps your personal tax situation.

What happens to bonuses, commissions, or profit sharing that haven’t been paid yet?

This is where people lose money fast. Employers love to use vague language like “salary continuation” — which usually means just base pay. Unless your agreement explicitly lists bonuses, commissions, or profit-sharing, you may never see them.

Action step: Pull your last year of pay stubs. Write down every category — quarterly bonus, annual bonus, commissions, profit share, stipends. Then check if they’re in the severance agreement. If not, ask for them in writing.

What happens to unused PTO, vacation, or sick days in severance?

Unused time off is money you’ve already earned — but employers may act like it’s optional.

• Some states (like California) require payout by law.
• Other states leave it to company policy.
• Sick time is often excluded unless state law says otherwise.

Action step: Check your state’s laws and your handbook. Then do the math on your accrued hours and confirm the payout in your severance agreement. If it’s not explicitly listed, you won’t get it.  Paid PTO is a negotiable even if its not legally required in your state. 

What happens to my stock options, RSUs, or equity grants?

Equity is one of the most overlooked — and most valuable — parts of severance. Here’s what to check:

• Vested stock: Usually yours, but you may only have 30–90 days to exercise options.
• Unvested stock: Often forfeited unless the company agrees to accelerate vesting.
• Continuation: Rare, but negotiable in some cases (especially exec roles).

Action step: Review your grant documents. Confirm whether vesting accelerates or freezes at termination. If you’re mid-cycle, push for partial or full vesting.

What happens to my retirement accounts (401(k) matches, pensions) when I sign?

• 401(k) balance: Always yours, but employer matches typically stop on your last day.
• Vesting: If you’re mid-vesting, unvested portions are usually forfeited unless negotiated. Vestige could be in employer contributions to 401(k), stock or other monetary benefits. 
• Pensions: If you’re vested, you keep what’s earned; if not, you lose it.

Action step: Ask HR for a final benefits statement. Compare it against your plan documents to confirm what you’re walking away with — and what you’re not.

Benefits & Insurance

Will I still have access to COBRA or other benefits through severance, and will the employer cover the cost?

Yes — by law, you can elect COBRA to keep the same health insurance plan you had at work for up to 18 months (sometimes longer for disability or qualifying events). But here’s the catch:

• You pay the full premium (your share + the employer’s share + a 2% admin fee). That’s why COBRA feels like sticker shock — what used to cost $250 a month on payroll deductions might suddenly be $800+.
• More employers now subsidize COBRA as part of severance. This trend exploded during COVID, when companies realized pushing people off insurance immediately looked inhumane. Some now cover 3–12 months, or until year-end.

👉 Action step: Don’t assume. Check your severance paperwork:

• Is COBRA listed?
• Does the company pay directly, or do you pay and get reimbursed?
• How long is the coverage subsidized?

How long will health insurance continue, and is COBRA covered by my employer?

Most company health plans stay active through the end of the month in which you’re terminated. COBRA kicks in the first day of the next month — retroactively.

Example: If you’re laid off Jan 15, your regular insurance usually continues until Jan 31. COBRA begins Feb 1.

Employers can:

• Cut checks for COBRA premiums (they pay the insurer).
• Reimburse you after you pay out of pocket.
• Cover only you, not your dependents.

Action step: Ask HR:

1. What’s my last day of regular coverage?

Need specifics on health coverage? See COBRA After a Layoff: costs, timelines, and employer subsidies.

1. When does COBRA start?
2. Who is paying the premiums?

Will severance cover my dependents (spouse, kids) under COBRA, or just me?

This is one of the easiest spots for employers to save money — and one of the most painful surprises for families. Severance agreements sometimes cover only the employee, leaving your spouse and kids uninsured unless you pick up the full tab.

Action step: Read carefully:

• Does it say “employee coverage” only?
• Does it include “eligible dependents”?
• If dependents aren’t covered, calculate the cost difference so you can plan (family COBRA can top $1,500/month).

👉 If you see gaps, you can negotiate. Even one extra line in your agreement — “coverage extends to eligible dependents” — can save thousands.

Restrictions & Your Next Job

If I accept a new job during the severance period, will my payments continue, or will they stop?

That depends on how your severance is structured:

• Lump sum: You keep it, no matter when you start a new job.
• Salary continuation: Payments often stop once you’re re-employed.

👉 Many agreements now frame severance as a “bridge” until your next paycheck. If you land a new job in month one of a three-month continuation package, the company may cut off months two and three.

Action step: Look for phrases like “severance ends upon reemployment”. If you already have a new role lined up, consider negotiating for a lump sum instead of continuation.

Worried about non-compete language? Severance Studio shows you what clauses mean—and how to protect your next role or business.

Do I have to notify my former employer when I get a new job?

Sometimes, yes. Increasingly, agreements require you to notify HR if you take another job during the severance period. Why? Because they tie severance (and COBRA subsidies) to you being unemployed.

Planning your next role? Read Non-Compete & Non-Solicit in Severance Agreements: what they mean and how to navigate them.

👉 Watch for clauses like “Employee agrees to notify the company within 5 days of accepting new employment.”

Action step: If you see this clause, you can negotiate timing. For example, ask for a lump sum payout instead, so you’re not forced to “report back” once reemployed.

Are there clawback clauses — can they make me repay severance if I violate terms?

Yes. Many agreements include “clawback” language, which lets the company demand repayment if you breach non-compete, non-solicit, or NDA terms. That means even money you’ve already spent could be pulled back.

Example: You accidentally apply for a competitor role that’s restricted. If they decide that’s a violation, they could ask for severance repayment.

Action step: Read the clawback section carefully. If it’s broad, narrow it in negotiation: limit repayment to intentional breaches, or remove it entirely.

What restrictions (non-compete, non-solicitation) are in the severance agreement, and how do they affect my next job?

This is the part that can quietly derail your career:

• Non-compete: Blocks you from working in certain industries, companies, or geographies for a certain timeframe, often 6–24 months. Even if you’re laid off.
• Non-solicitation: Prevents you from contacting former clients, vendors, or coworkers — even if they reach out to you.

These restrictions aren’t always fair — but they’re enforceable in many states.

Action step: List your top 2–3 career paths (new job, consulting, starting a business). Then confirm whether your severance restrictions block them. If they do, negotiate carve-outs or push for shortened timelines.

What nondisclosure/confidentiality rules still apply after I sign?

Almost all of them. NDAs and confidentiality clauses typically last forever, even after your employment ends. That means:

• You can’t use or share trade secrets, client lists, pricing models, or internal processes.
• Even things you personally created (software, templates, strategies) are usually the company’s property.

Action step: Before you leave, don’t download or email yourself company materials — that’s a fast track to legal trouble. Instead, negotiate clear language in your severance about what knowledge you can use going forward (e.g., general skills vs. specific IP).

Rights & Waivers

Am I giving up my rights to sue by signing the severance waiver?

Yes. The waiver is the core of most severance agreements: you agree not to sue the company in exchange for money and benefits. That usually covers:

• Wrongful termination claims
• Discrimination or harassment claims
• Wage or overtime disputes

👉 Think of severance as the company paying for legal peace of mind. If you have any intent to sue, don’t sign — talk to an attorney first.

What rights am I giving up by signing the severance waiver?

Beyond lawsuits, you may also be giving up:

• The right to join a class action lawsuit against the company
• The right to pursue retaliation or whistleblower claims (in some agreements)
• Certain employment rights, like rehire eligibility or freedom to compete (if bundled into the waiver)

👉 Always read carefully. These waivers are often written broadly on purpose so they cover more than you realize. Ask a local attorney if you are unsure. 

Does the waiver cover future claims I don’t know about yet?

It shouldn’t — but sometimes it does. Some agreements sneak in language that waives future claims, like “known or unknown” claims, or “anything arising out of” employment.

The problem: You can’t possibly value what you don’t know. That’s why future claim waivers are controversial — and worth pushing back on.

👉 If you see phrases like “known or unknown, past, present, or future claims,” ask to remove them.

I have everything in emails, is that ok?

The entire agreement clause in your severance agreement means only what’s written in the severance contract counts. Emails, conversations, or “don’t worry, we’ll cover that” side promises? They disappear the moment you sign.

👉 Example: If HR emails “Yes, your commission will be included,” but it isn’t in the severance paperwork, you can’t enforce it later.

Action step: Get every clarification in the agreement itself, not just in writing elsewhere.

Does the agreement include a non-disparagement clause, and is it mutual?

Many do — and they’re often one-sided. That means you agree not to badmouth the company, but they’re not restricted in what they can say about you.

👉 What to do: Ask for mutual non-disparagement. That way, both parties commit to professionalism and protect each other’s reputation.

Other Severance Terms & Practicalities

Am I still eligible for rehire at the company or affiliates after signing?

Often, no. Many severance agreements include a clause that makes you ineligible for rehire — not just at your old company, but sometimes at its affiliates, subsidiaries, or future merged entities.

👉 Why? Employers use this to reduce risk of retaliation or repeat litigation. But it also means a door is permanently closed.

Action step: If you want to keep that door open, ask to strike or narrow the clause (e.g., “not eligible for rehire in the same division” vs. “not eligible anywhere in the company”).

What kind of reference will my employer provide after signing the severance?

Most companies will confirm only the basics: job title, dates of employment, and sometimes last salary. That’s it.

👉 But here’s where it matters: some severance agreements let you negotiate a neutral reference clause, which requires HR to stick to facts only, or even a positive reference letter if you ask for it up front.

Action step: If reputation matters in your industry (and it usually does), get a neutral or positive reference commitment written into your agreement.

How long do I have to review or sign a severance agreement?

Confirm with your employer and your jurisdiction, but there are laws that can sometimes help you get some breathing space to review before signing:

Some legal waiting periods are (confirm for your jurisdiction):

• 40+ years old: At least 21 days to review (because of age-discrimination protections).
• Group layoffs: Employees 40+ can get 45 days.
• Sometimes: 7 days to revoke after signing.

👉 Employers often pressure you to “sign quickly,” but many laws gives you time. Confirm and if needed, use it. Review carefully, and consult an attorney if needed.

What parts of the severance agreement can I negotiate before signing?

More than most people realize. Commonly negotiated items:

• Money: Duration of pay, lump sum vs. installments.
• Benefits: COBRA coverage length, who’s included (spouse/dependents).
• Equity: Accelerated vesting of stock or RSUs.
• References: Neutral or positive letters.
• Clauses: Narrowing non-competes or clawbacks, making non-disparagement mutual.

👉 Rule of thumb: If it matters to your paycheck, benefits, or reputation — it’s worth raising.

Can I negotiate my severance agreement? If so, how?

Yes, and you should. Even if the company says “standard policy,” there’s often flexibility.

Tips:

• Know your leverage: Length of service, risk of litigation, your role’s visibility.
• Pick your priorities: Don’t ask for everything; focus on 2–3 high-value changes.
• Be specific: Ask for lump sum instead of continuation, or extend COBRA to cover dependents.
• Stay professional: Remember, severance is business, not personal.

👉 A respectful, businesslike approach often works better than demands.

How does severance differ for executives vs regular employees?

Executives usually get:

• Longer pay: 6–12 months (vs. weeks for regular staff).
• Equity treatment: More favorable vesting or stock acceleration.
• Perks: Outplacement services, legal fees covered, continued office/tech use.
• Stricter restrictions: Tighter non-competes, confidentiality, clawbacks.

For most employees, severance is shorter (1 week per year of service is a baseline), benefits end faster, and restrictions are less heavily enforced.

👉 Translation: executives negotiate with lawyers, employees often don’t. But you can — and should — advocate for yourself at any level.

Last Updated Sept, 2025

Author: Acacia Thornton 

Acacia is a former Fortune 500 Attorney and long time business advisor and coach. She's trained lawyers and supported 9-figures in annual income around the globe.