Severance Pay Calculator

The first £30,000 of a qualifying termination payment — including statutory redundancy pay — is completely tax-free (no income tax, no employee National Insurance). Any amount above £30,000 is taxed at your marginal income-tax rate; employee NI is still not charged on the excess. Your employer pays Class 1A NIC at 15% on any amount above £30,000 (from April 2025 rate), but this is a cost to them, not a deduction from your pay. Note in particular that PILON (pay in lieu of notice) does not count toward the £30,000 exemption — it is taxed as normal earnings.

There is no federal law requiring US private-sector employers to pay severance. The US Department of Labor states it is a matter of agreement between employer and employee. Two states have genuine severance mandates: New Jersey (NJ WARN Act, effective April 2023) requires 1 week of pay per full year of service for covered mass layoffs, even when full 90 days' notice is given; Maine (Title 26 §625-B) requires 1 week per full year plus pro-rata for employees with at least 3 years of continuous service at the covered establishment. In all other states, severance is contractual. Market benchmarks for US private-sector packages are typically 1–2 weeks of base pay per year of service.

Severance is classified as supplemental wages by the IRS. Federal income tax is withheld at the flat supplemental rate of 22% on amounts up to $1,000,000 (37% on any portion above $1 million). FICA taxes also apply: Social Security at 6.2% up to the 2026 wage base of $184,500, and Medicare at 1.45% with no cap (an additional 0.9% Medicare surcharge applies above $200,000 for single filers). State income tax is charged at the applicable state rate. Total withholding on a typical lump sum is often 30–40% before the employee files their annual return.

The federal WARN Act (29 U.S.C. §2101) requires employers with 100 or more employees to give at least 60 calendar days' advance written notice before a plant closing or mass layoff affecting 50 or more workers at a single site. It does not mandate a severance payment, but failure to give the required notice makes the employer liable for back pay and benefits for each day of deficiency (up to 60 days) — in effect creating a de facto 60-day severance obligation. New Jersey's state WARN Act goes further: it requires 90 days' notice and mandates 1 week of severance pay per year of service even when full notice is given, plus an additional 4 weeks if notice is shorter than 90 days.

In the UK, the statutory formula applies age-banded multipliers (0.5–1.5 weeks per year) capped at 20 years and a weekly pay cap of £751 (GB, 2026/27). In the US, where there is no federal mandate, the market benchmark for private-sector packages is approximately 2 weeks of base pay per year of service (with "low" at about 1 week/year and "generous" at 4 weeks/year or 1 month/year). Executive packages are typically higher — often 3–6 months plus equity considerations. Federal civilian employees use the OPM formula: 1 week/year for the first 10 years and 2 weeks/year beyond 10 years, capped at 52 weeks total.