North American Severance Trends
The ongoing war for talent means building and protecting your employer brand is more important than ever before. Our research reinforces what we’ve known for over 40 years: the way you treat people as they leave the business impacts your ability to attract talent in the future. Severance is a key component in building healthy, durable, employer-employee relationships - both for those leaving the business and for those who remain.
Severance Trends in North America
Elements of a Severance Package
Severance varies greatly depending on the company, come in various forms, from a lump sum of compensation to a continuation of health benefits to a retirement plan extension. While some employers offer as much as 20 weeks of base pay, others offer just 10 weeks with little additional support like extended health care or immigration services. Elements of a severance package most often include:Â
Most employers include a severance pay in their packages. This is typically the employee’s salary and is offered for a certain time period that the employer decides on. The typical severance pay employers offer is one to two weeks for every year the employee worked.
Severance pay is a crucial component of a severance package because it serves as a financial safety net for employees who are facing the uncertainty of job loss. It recognizes the employee’s contributions to the organization and provides them with a cushion to cover immediate expenses during the transitional period between jobs. This financial support can help individuals manage their bills, secure essential services like healthcare, and alleviate the stress associated with sudden unemployment.
Many severance packages also include health insurance coverage for a specific amount of time. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to temporarily continue their employee’s health insurance plans for 18 months after being let go from the company. Though you’re required to extend the coverage, you most likely don’t have to pay for the employees’ health insurance.Â
That said, including benefits continuation as part of a severance package is essential because it offers crucial financial and emotional security to employees during a challenging period of transition. Losing a job often means losing access to employer-sponsored health, dental, and other insurance benefits, which can be a significant concern for individuals and their families. By extending insurance coverage for a specified period, employers help departing employees maintain access to vital healthcare services without facing a sudden gap in coverage.
Protecting retirement and pension plans as part of a severance package is important because it recognizes an employee’s long-term commitment to the organization and helps them safeguard their financial future. These plans are often built over years or even decades of service, and abrupt job loss shouldn’t jeopardize an individual’s retirement security. Given the variety and complexity of retirement vehicles, we recommend consulting with a certified professional when managing retirement or pension as part of your severance strategy.
A critical option to offer employees in their severance package is Outplacement Services. These services support the employee during their unemployment period and helps them find a role well-suited for their skills, interests and experience.Â
By offering outplacement services, employers provide valuable resources and support to help departing employees find new opportunities more efficiently and with greater confidence. This assistance includes resume building, interview preparation, networking guidance, and access to job placement programs. Not only does it ease the immediate financial and emotional burden of job loss, but it also reinforces a positive employer-employee relationship, showing that the company values its workers’ continued success beyond their tenure with the organization. In this way, job search assistance within a severance package benefits both parties, ensuring a smoother transition for the departing employee and preserving the company’s reputation as a responsible and compassionate employer.
A severance package could include additional company perks for employees like extending the use of your company car, letting them keep their work laptop or allowing them to sustain their company gym membership.
- Education or Retraining
- Financial Planning
- Continuation of Stock Options
- Ongoing Access to Employee Assistance Program (EAP)
- Retain Company Cell Phone and Mobile Number
- Retain Company Laptop and/or Home Office Equipment
Offering severance mitigates liability and significantly reduces the number of employee lawsuits.
One in five small and mid-sized businesses will face an employee lawsuit, at the cost of $125,000 on average to defend. Since lawsuits are often expensive and time-consuming, investing in severance packages to help prevent legal action altogether can save the organization money and resources.
In addition to a release of claims, a company can include an NDA in its employee termination agreement.
(Source: Inc. Magazine)
Offering severance packages is a strategic move for businesses looking to reduce overall costs in the long run. While it might seem counterintuitive to provide additional benefits to departing employees, severance packages help minimize potential financial and operational risks. The upfront investment in a severance package yields substantial savings by averting potential legal issues, preserving company reputation, and maintaining a stable work environment during times of change.
When a company has a poor reputation, per-hire costs are $4,723 higher. A poor reputation also damages relationships with exiting employees—limiting your ability to attract valuable boomerang talent.Â
(Source: Harvard Business Review)
Layoffs and other workforce changes can have large impacts on a company’s reputation. Negative perceptions of the company can significantly change the way a brand is perceived, which is why more companies are strategizing to create positive offboarding experiences for employees leaving the company.
Offboarding experiences can be improved by providing departing employees with severance packages—especially if those packages include outplacement services. Employees given outplacement or career assistance following a layoff were 38% less likely to harbor a negative perception of their former employer
(Source: CareerArc/Intoo Employer Branding Study).
Severance packages that mitigate negative fallout can protect the workplace culture. Severance packages also improve a company’s workplace culture by showing the company cares about its employees. Create a positive company culture by showing your gratitude and appreciation for their dedication to the company and fostering loyalty and productivity among remaining employees.
85% of Americans think most companies don’t provide enough help to employees when laying them off, and more than 4 in 5 Americans think outplacement should be offered to every employee who is laid off by their employer.
(Source: The Harris Poll online survey conducted on behalf of INTOO from March 2-4, 2020 among 2,011 U.S. adults ages 18+)
Severance packages can help retain customers, too. In the age of social media, news of a company’s employee treatment can spread quickly, far beyond the company’s offices. If employees leaving a company feel abandoned or mistreated due to the lack of a severance package and choose to share those feelings on the internet, the company’s reputation— and customer base—can suffer.
64% of consumers have stopped purchasing a brand after hearing news of that company’s poor employee treatment. Thus, it’s vitally important today for companies to ensure employees leave companies on as positive a note as possible.
(Source: CareerArc/Intoo Employer Branding Study)
News of layoffs often make headlines, especially if the event affects a significant number of people. Even in the case where just one person is terminated, an angry employee who has been let go without the proper offboarding protocol can attract significant social and media attention.
Offering severance packages plays a pivotal role in safeguarding a company’s reputation and mitigating negative publicity. When employees are treated with fairness and respect during a job termination, they are less likely to harbor resentment or engage in negative word-of-mouth about their former employer. Instead, they may share positive experiences about the support they received during their transition, which can counterbalance any potential negative narratives.
Severance Trends in North America
When Are Severance Packages Required?
Severance policies are generally governed by corporate policy and local/national law in all regions. While federal law doesn’t require companies to provide severance packages in the US, there are a few instances where companies may be legally required to offer this benefit to departing employees.
Federal law requires large employers with 100 or more full-time (or full-time equivalent) employees to give a 60-day notice to employees who will be losing their positions in the case of a mass layoff or plant closure. If a company in this situation fails to provide the required advance notice, affected workers may be entitled to pay and benefits lost.
If some or all of your employees belong to a union, your company will be held to the agreement it has with that union. Many of these agreements require companies to provide severance pay and benefits in the case of a layoff or other employee termination.
Some companies have policies in place regarding severance packages. These policies may detail how severance pay is calculated and what other benefits are included in severance packages.
Severance Trends in North America
Most-Offered Severance Benefits
- Cash Payouts*
- Health Benefits Continuance or COBRA
- Outplacement Services
- Payment of Eligible Bonuses or Commisions
- Retirement Benefits
- Retirement & Financial Planning Services
- Life Insurance
- Education or Retraining
- Long-Term & Short-Term Disability
- Employee Assistance Program (EAP)
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Severance Trends in North America
Severance Statistics & Trends
Average Lawsuit Cost
One in five small and mid-sized businesses will face an employee lawsuit, at the cost of $125,000 on average to defend.
(Source: Inc. Magazine)
Cost for Poor Reputation
When a company has a poor reputation, per-hire costs are $4,723 higher.
(Source: Harvard Business Review)
Share Negative Perceptions
66% of people who have had negative layoff experiences share their perceptions with others—and the reach of that negative word-of-mouth can be significant.
(Source: Employer Branding Survey).
Expect Outplacement
80% of Americans think outplacement should be offered to every employee who is laid off by their employer.
(Source: The Harris Poll, 2020)
Stopped Purchasing
64% of consumers have stopped purchasing a brand after hearing news of that company’s poor employee treatment.
(Source: CareerArc/Intoo Employer Branding Study).
Less Likely to be Negative
Employees given outplacement following a layoff were 38% less likely to harbor a negative perception of their former employer.
(Source: CareerArc/Intoo Employer Branding Study).
Severance Trends in North America
Voluntary & Involuntary Severance Survey
C-Suite Executives
3-5 Weeks of Severance Per YOS
Minimum 12Â Months of Severance
Maximum 24Â Months of Severance
12-Month Executive Outplacement
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
SVPs & VPs
3-4 Weeks of Severance Per YOS
Minimum 6Â Months of Severance
Maximum 18Â Months of Severance
6-Month Executive Outplacement
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
Directors & Sr Managers
2-4 Weeks of Severance Per YOS
Minimum 12 Weeks of Severance
Maximum 12 Months of Severance
6-Month Outplacement Program
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
Managers & Supervisors
2-3 Weeks of Severance Per YOS
Minimum 12 Weeks of Severance
Maximum 32Â Weeks of Severance
3-6 Month Outplacement Program
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
Individual Contributors
2 Weeks of Severance Per YOS
Minimum 8-12Â Weeks of Severance
Maximum 24 Weeks of Severance
3-6 Month Outplacement Program
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
Hourly Contributors
2 Weeks of Severance Per YOS
Minimum 8 Weeks of Severance
Maximum 24 Weeks of Severance
2-Month Outplacement Program
✅ Medical Benefit Continuation
✅ Retirement Benefits
✅ PTO / Bonus Eligibility (Prorated)
A lump sum payment is most common at all employee levels, and increases in prevalence for lower employee levels.
C-Suite Executives, VPs, and Directors receive a lump sum payment 50% – 55% of the time, salary continuation 30% – 35% of the time, and get to choose between lump sum or salary continuation 5% – 10% of the time.
Managers and Supervisors receive a lump sum payment 55% – 65% of the time, salary continuation 25% – 35% of the time, and get to choose between lump sum or salary continuation 1% – 5% of the time.
Individual and Hourly Contributors receive a lump sum payment 65% – 75% of the time, salary continuation 20% – 25% of the time. Individual and hourly contributors do not typically get to choose between lump sum or salary continuation.
Around 40% of severance packages offered to C-Suite Executives include annual incentives. This decreases with employee level, with only 10% of severance packages for frontline workers including annual incentives. A vast majority (over 65%) of annual incentives included in severance are based on a YTD prorated number. Less common methods of incorporating annual incentives in severance include payment based on the average bonus over a number of years or matching the most recent bonus paid prior year.
It is common to continue medical, dental, and vision benefits for all employee levels. Non-health benefits are not typically continued after termination. On average, an employee is offered medical continuation 90% of the time, dental/vision continuation 70% of the time, and life insurance continuation 20% of the time.
Approximately 70% of the time an employee remains on the medical plan (i.e., same cost sharing arrangement) for the length of the severance period. Roughly 10% – 20% of the time, a lump sum cash payment is provided that equals the employer cost share for the duration of the severance period.
Severance Trends in North America
What is Voluntary Separation?
Voluntary separation is a mutual agreement between an employer and an employee, where the employee chooses to leave the company in return for severance and additional benefits. Companies typically introduce voluntary severance programs as a way to cut costs or reorganize without resorting to layoffs. Unlike involuntary separations like layoffs or terminations, employees have the option to accept or reject a voluntary severance offer.
Voluntary Pros:
- Encourages disengaged or underperforming employees to leave
- Gives your business protection from legal risk
- Helps preserve company brand and culture
Avoid the stress and negative cultural implications of an involuntary event
Voluntary Cons:
- Potentially seen as a sign of financial distress and the process can be long
- Highly skilled and valued employees may leaveÂ
- Layoffs may still be necessary if voluntary separations are too low
- Employers must invest in recruiting, hiring, and training new employees
Involuntary Pros:
- Companies get to choose who leaves and when
- Financial cost savings are achieved in a single action
Companies can identify and select non-performers to leave
Involuntary Cons:
- Remaining key talent may be lost due to employment stability concerns
- Employees will be shocked, upset, and may not remain brand advocates
- Potential legal risks and difficult time finding new talent
Voluntary Separation Best Practices
1. Communication
Explain voluntary separation, the benefits of the package, and the desired outcome.
2. Applicability
Communicate who is allowed to apply for the incentive and what makes someone eligible.
3. Procedures
Explain how the event will work and what steps are involved throughout the process.
4. Eligibility
Frequently lay out the requirements and steps that need to be taken for someone to apply.
5. Documentation
Decide on how the event details and separated employees will be documented.
6. Post Separation Support
Provide severance and outplacement services to support separated employees..
Voluntary Separation Statistics
Offered Voluntary Separation
77% of companies offered voluntary separation to employees last year in an attempt to avoid layoffs.
Offering this Year
Half of businesses that haven’t offered voluntary separations will start offering them this year.
Reduce Costs
90% of companies believe providing voluntary separation packages to employees helps reduce costs.
Need Workers to Leave
53% of businesses need at least 1 in 5 workers to leave willingly in order to avoid layoffs.
Who Gets the Offer
When deciding on which employees to offer voluntary separation, 49% of businesses say they consider who is closest to retirement, and 40% consider compensation.
Source of Stats: ResumeBuilder
Voluntary Separation in the News
Severance Trends in North America
The Impact of Outplacement as a Severance Benefit
Severance Trends in North America
Severance Recommendations
- Create universal eligibility policies that encompass all employees leaving the business. Every offboarding offers a chance to build or break your employer brand.
- Update severance benefit packages annually, taking into account inflation, job market conditions, and employer brand strategy.
- Consider deploying an annual voluntary retirement/separation initiative to limit involuntary reductions and create additional advancement opportunities for high potential and developing talent.Â
- Evaluate and retain an outplacement partner with local depth and global reach, capable of helping establish best practices and enterprise-wide processes.
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