6 Months Severance Pay
If you work in certain industries like finance, 6 months severance pay is not uncommon. This type of compensation is offered as a financial cushion for employees who are laid off or fired from their job in order to assist them financially during their job search. In addition to severance pay, the average severance package includes outplacement assistance and other benefits like health insurance and unused vacation time.
Generally, companies only offer severance packages for certain types of jobs and levels of seniority within the company. Those who are higher in the hierarchy of their professions and those with longer tenure with the employer are more likely to be offered severance pay, according to research conducted by Randstad RiseSmart.
Severance pay is compensation paid in lieu of termination or layoff, and it is sometimes included in employment contracts or company handbooks. While employers are not legally required to offer severance, it is typically offered as a show of good faith and gratitude for an employee’s long service to the company and as a deterrent to bring a lawsuit against the company in the event of wrongful termination or unjustified dismissal.
While the average severance pay in the United States is only about two weeks of salary per year of employment, some employers may offer a greater amount depending on the circumstances. This is especially common if an employee is terminated without cause or the company is reorganizing and downsizing a department, as these reasons would justify more generous severance pay, according to a 2023 study by CareerBuilder.
How Much Is 6 Months Severance Pay?
The most important thing to remember when calculating severance pay is that it’s just one aspect of the total package that you are receiving. The other aspects include any accrued vacation time, unused sick days and unreimbursed business expenses. You should consider all of these factors when determining if your severance package is fair or not, and you should consult with a CPA or tax professional for additional guidance.
In terms of how define severance pay is taxed, it depends on how the company distributes the money. If they pay it out as part of your normal wages or salary, you will have the same withholdings applied to it that are taken out of your regular paycheck. However, if they give you the money in a lump sum, then you will be subject to different rules. If you are receiving the money in a lump sum, then it will be treated as income for the year that you receive it and will be taxed at the same rate as your regular wages or salary.
While a severance pay package can provide some security in the short term, it won’t last forever and you should be prepared for the inevitable job search. Hopefully, you’ve built a hefty emergency fund and have other sources of income that can help make up for the gap in your paychecks. If not, a Northwestern Mutual financial advisor can help you create a plan to cover short-term expenses without impacting your long-term goals too significantly.