A severance agreement is a trade at the end of employment: the employer provides severance pay and benefits it does not otherwise owe, and the employee releases legal claims arising from the employment and its termination.
The release is only as strong as its compliance. For employees 40 and older, federal law (the ADEA, via the Older Workers Benefit Protection Act) requires 21 days to consider the offer and 7 days to revoke after signing; this template builds those periods in.
How much severance is standard?
There is no legal minimum: severance is contractual unless promised by policy or an employment agreement. The common market benchmark is one to two weeks of pay per year of service, more for executives and in negotiated departures. Employer-paid COBRA premiums for a few months are a frequent and highly valued addition, which this template offers as an option.
| Component | Typical range |
|---|---|
| Severance pay | 1 to 2 weeks per year of service |
| COBRA contribution | 0 to 6 months of premiums |
| Payment form | Lump sum or payroll installments |
| References | Neutral confirmation of dates and title |
The 21/7 day rule for employees 40 and older
A release of age discrimination claims is invalid unless the agreement gives the employee at least 21 days to consider it (45 days in group layoffs, which also require extra disclosures), advises consulting an attorney, and allows 7 days to revoke after signing. Severance must not be paid until the revocation window closes. Skipping these steps does not just void the age release: it hands the departing employee leverage.
Group layoffs need more
When two or more employees are terminated in a group program, the ADEA requires 45 days of consideration plus a written disclosure of the job titles and ages of those selected and not selected. Use attorney-drafted documents for group reductions.
What a release cannot cover
- The right to file a charge with the EEOC or cooperate with government investigations
- Unemployment insurance and workers' compensation claims
- Vested 401(k) and pension benefits
- Claims that arise after the agreement is signed
- In several states, claims the legislature has made non-waivable
This template carves those out explicitly. A release that tries to cover everything reads as overreaching and invites a court to strike it entirely.
Frequently asked questions
Is severance pay required by law?
No federal or state law requires severance for ordinary terminations. It becomes owed only through a contract, a policy, or an agreement like this one. What is always owed: final wages and, in some states, accrued vacation.
Why would an employer pay severance voluntarily?
To buy certainty. The release extinguishes most potential claims from the employment, avoids litigation costs, and closes the relationship on defined terms. For the employee, it converts an uncertain claim into immediate compensation.
Can the employee negotiate the severance offer?
Yes, and it happens routinely: amount, payment schedule, COBRA contribution, and the reference clause are all negotiable. Under the ADEA rules, negotiated changes do not restart the 21-day consideration period.
Is severance pay taxed?
Yes. Severance is wages: it is subject to income tax withholding and payroll taxes, and is reported on the W-2. The agreement states gross amounts with required withholdings deducted.
When should the severance actually be paid?
After the agreement is effective: immediately upon signing for employees under 40, and only after the 7-day revocation period expires for employees 40 and older. Paying earlier undermines the release.