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US Severance Pay Laws: Key Requirements for International Employers

PEO master health plans promise better rates through scale, but rising denial rates and market changes have shifted the landscape. Small businesses now face unprecedented rejections while competitive open market options emerge. Understanding these changes is crucial for making informed decisions about employee health coverage and finding optimal solutions.
us severance pay law

International businesses expanding to the United States often discover that American employment law differs dramatically from their home countries, particularly regarding severance pay obligations. While many European nations mandate statutory severance, the US operates on fundamentally different principles that can catch unprepared international employers off-guard during workforce reductions.

Understanding US severance pay requirements isn’t just about compliance—it’s about strategic workforce management that protects your expansion while maintaining your employer brand. With companies increasingly offering more generous severance packages (a 72% increase from 2020 to 2025 according to LHH’s 9th Severance and Separation Benchmark Report), international businesses must navigate complex federal and state regulations while positioning themselves competitively in the American talent market.

The stakes are significant: Meta paid out $975 million in severance costs when laying off 11,000 employees—more than $88,000 per person on average. For international companies, understanding these obligations before workforce transitions becomes critical for financial planning and legal compliance.

The Fundamental US Framework: Federal Law Foundation

Unlike countries with comprehensive severance statutes, the United States operates on a voluntary basis at the federal level. There is no requirement in the Fair Labor Standards Act (FLSA) for severance pay. Severance pay is a matter of agreement between an employer and an employee (or the employee’s representative), according to the U.S. Department of Labor.

This voluntary framework means international companies have significant discretion in designing severance policies, but also face complex state-by-state variations and specific triggering events that create mandatory obligations.

Federal Requirements: The WARN Act

The primary federal law affecting severance is the Worker Adjustment and Retraining Notification (WARN) Act. The Worker Adjustment and Retraining Notification Act protects workers, their families, and communities by requiring employers with 100 or more employees (generally not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week) to provide at least 60 calendar days advance written notice of a plant closing and mass layoff affecting 50 or more employees at a single site of employment.

WARN Act Triggers:

  • Plant Closings: Shutting down a facility affecting 50+ employees
  • Mass Layoffs: Affecting 50+ employees (if they represent 33% of workforce) or 500+ employees regardless of percentage
  • Coverage: Employers with 100+ employees

Critical Compliance Point: If an employer does not give advanced notice of a plant closure or mass layoff, employees may be entitled to recover damages equal to 60 days’ pay and benefits. When employers fail to provide proper 60-day notice, they become liable for back pay and benefits equivalent to the notice period not provided.

State-Level Severance Requirements: The Complex Landscape

While most states mirror federal voluntary approaches, several have enacted specific severance mandates that international employers must understand.

New Jersey: The Most Comprehensive State Requirements

New Jersey severance pay

New Jersey stands as the only state mandating universal severance pay for covered layoffs. New Jersey became the first state to require employers to pay severance to workers who are laid-off or terminated through workforce reductions under the expanded Millville Dallas Airmotive Plant Job Loss Notification Act.

New Jersey WARN Requirements (Effective April 2023):

  • Coverage: Employers with 100+ employees
  • Mandatory Severance: One week of pay for each year of employment
  • Additional Penalties: 4 weeks additional pay if employer fails to provide full 90-day notice
  • Expanded Definition: Mass layoffs affecting 50+ employees statewide (not per location)
  • Payment Terms: Lump sum on first regularly scheduled payday after employment ends

Under the new law, a “mass layoff” that triggers NJ WARN notice requirements is a reduction in force that impacts 50 or more employees across the entire state, regardless of whether they are part-time or full-time, the facility in which they work, or the percentage of the workforce they comprise.

Strategic Implication: A company with 5 separate New Jersey locations losing 10 employees at each location may trigger state-wide WARN requirements.

California: Advanced Notice and Consideration Periods

california severance pay

California doesn’t mandate severance pay but has implemented sophisticated procedural requirements. California implemented a 5-day minimum severance consideration period to workers, requiring employers to provide employees adequate time to review severance agreements.

California Requirements:

  • Final Pay: Must be paid immediately upon termination for fired employees, within 72 hours for resignations per California Labor Code
  • Consideration Periods: 5-day minimum for reviewing severance agreements
  • WARN Compliance: California WARN Act with enhanced notice requirements

New York: Proposed Enhanced Protections

new york severance pay

New York has proposed the “No Severance Ultimatums Act” (S7609B), which would be the most progressive proposal in the country, seeking to extend the protections from the Older Workers Benefit Protection Act (OWBPA) to all employees of the state, regardless of age.

Proposed New York Requirements:

  • 21-day consideration period for all severance agreements
  • 7-day revocation period after signing
  • Mandatory attorney consultation notice
  • Prohibition on coercive ultimatums

Illinois: Conditional Severance Protections

Illinois severance pay

Illinois provides 21-day consideration periods with a 7-day revocation period but only if the agreement contains promises of confidentiality related to alleged unlawful employment practices.

State-by-State Severance and Final Pay Comparison Table

State

Severance Required

Final Pay Timing

WARN Act

Special Considerations

New Jersey

✅ 1 week per year + 4 weeks penalty

Immediately

90-day notice

Only state with mandatory severance

California

❌ Voluntary

Immediately (fired)

State WARN

5-day consideration period

New York

❌ Voluntary

Next payday

State WARN

Proposed 21-day consideration

Illinois

❌ Voluntary

Next payday

State WARN

21-day review if confidentiality clause

Texas

❌ Voluntary

Next payday

Federal WARN only

Right-to-work state

Florida

❌ Voluntary

Next payday

Federal WARN only

At-will employment

Washington

❌ Voluntary

Next payday

State WARN

Enhanced worker protections

Massachusetts

❌ Voluntary

Next payday

State WARN

Proposed enhanced requirements

Connecticut

❌ Voluntary

Next payday

State WARN

Plant closure notification

Maryland

❌ Voluntary

Next payday

Economic Stabilization Act

60-day notice for 25%+ workforce

Pennsylvania

❌ Voluntary

Next payday

Federal WARN only

Final pay within normal cycle

Ohio

❌ Voluntary

Next payday

Federal WARN only

Accrued vacation required

Michigan

❌ Voluntary

Next payday

State WARN

Manufacturing focus

Georgia

❌ Voluntary

Next payday

Federal WARN only

Right-to-work state

North Carolina

❌ Voluntary

Next payday

Federal WARN only

Right-to-work state

Virginia

❌ Voluntary

Next payday

Federal WARN only

Right-to-work state

Industry-Specific Considerations for International Businesses

Technology Sector Standards

The technology industry has established generous severance norms that international companies must consider competitively. Recent examples include:

  • Google: 16-week base severance plus 2 weeks for each year of service
  • Meta: Average $88,000+ per laid-off employee
  • Amazon: 60-day full pay period plus additional weeks based on tenure

Manufacturing and Industrial

Manufacturing companies often negotiate severance through collective bargaining agreements, creating industry-specific standards. International manufacturers entering the US market typically encounter:

  • Union Contract Requirements: Predetermined severance formulas
  • Plant Closure Protections: Enhanced WARN Act compliance
  • Skills Transfer Considerations: Additional training and placement services

Financial Services

The financial services industry frequently provides above-market severance packages due to:

  • Regulatory Requirements: Enhanced scrutiny during workforce reductions
  • Client Transition Needs: Extended notice periods for relationship management
  • Compliance Considerations: Non-compete and confidentiality agreements

Healthcare and Life Sciences

Healthcare employers often provide enhanced severance due to regulatory requirements and the specialized nature of medical credentials. Considerations include:

  • Professional Licensing: Transition support for credential maintenance
  • Patient Care Continuity: Extended notice periods for clinical roles
  • Research and Development: Intellectual property and project transition requirements

Retail and Hospitality

These industries typically offer minimal severance but face seasonal workforce challenges requiring:

  • Seasonal Considerations: Different standards for permanent vs. temporary workforce
  • Location-Based Variations: Urban vs. rural market expectations
  • Skills Transferability: Career transition and retraining support

 

WARN Act Compliance: Critical Requirements for International Employers

Federal WARN Thresholds

WARN makes certain exceptions to the requirements when layoffs occur due to unforeseeable business circumstances, faltering companies, and natural disasters.

Exceptions Include:

  • Unforeseeable business circumstances
  • Faltering company attempting to obtain capital
  • Natural disasters

State WARN Variations

Many states have enacted enhanced WARN Acts with lower thresholds and longer notice periods:

New York State WARN:

  • Coverage: 50+ full-time employees
  • Notice Period: 90 days (vs. 60 federal)
  • Mass Layoff Threshold: 25+ employees (if 33% of workforce) or 250+ employees

California WARN:

  • Coverage: 75+ employees
  • Notice Requirements: Multiple government entities
  • Additional Protections: Enhanced worker notification

Understanding the True Cost of Workforce Reductions

International companies often underestimate the comprehensive financial impact of workforce reductions, focusing solely on direct severance payments while overlooking substantial hidden costs that can exceed the initial severance investment. Modern research reveals that the total cost of layoffs extends far beyond the immediate cash payments, creating a complex financial equation that requires sophisticated planning.

When Meta laid off 11,000 employees and paid $975 million in severance, the company noted that while the direct costs appeared substantial, they were offset by saved payroll, bonuses, and benefits. However, this accounting reflects only the immediately visible costs. Recent studies by ActivTrak, analyzing seven companies that conducted layoffs from January 2022 through April 2024, found that companies lose more than $50,000 monthly in productivity for every 100 remaining employees, with output typically requiring six months to return to normal levels.

The productivity decline stems from multiple factors affecting workforce morale and efficiency. Remaining employees experience increased anxiety about job security, leading to decreased focus on quality and innovation. This psychological impact translates directly into measurable business consequences: higher product defect rates, reduced customer satisfaction, increased workplace accidents, and diminished creative problem-solving. Additionally, companies face elevated turnover rates among remaining staff, creating a cascading effect requiring expensive recruitment and training for replacement personnel.

Financial implications extend beyond operational disruptions. Unemployment insurance tax rates increase based on layoff frequency and volume, creating long-term cost implications. Legal and administrative expenses accumulate through WARN Act compliance procedures, potential discrimination litigation, and the administrative burden of processing multiple terminations simultaneously. These costs compound when international companies must navigate varying state requirements and coordinate across multiple jurisdictions, often requiring specialized legal counsel and HR consulting services that domestic companies may not need.

Tax Implications and Payment Considerations

Severance pay is treated as taxable income subject to:

  • Federal income tax withholding
  • Social Security and Medicare taxes
  • Federal unemployment tax (FUTA)
  • State income taxes (where applicable)

Severance pay in California is taxable at state income tax rates, which as of 2024 range from 1% to 13.3%, demonstrating the significant tax implications for high-earner terminations. The Internal Revenue Service (IRS) classifies severance pay as taxable income, liable to federal income tax withholding and, in numerous instances, taxes on Social Security and Medicare.

Best Practices Framework for International Employers

Successful severance management requires a systematic approach that integrates legal compliance, financial planning, and strategic workforce management. International companies that excel in this area follow proven frameworks that minimize risk while maximizing business outcomes.

Phase

Critical Actions

Key Deliverables

Success Metrics

Pre-Planning

Legal audit of all operating states<br>Policy development and documentation<br>Financial modeling and budget allocation

Comprehensive severance policy manual<br>State-specific compliance checklists<br>Cost projection models

100% compliance across jurisdictions<br>Accurate budget forecasting<br>Clear policy documentation

Implementation

WARN Act notice coordination<br>Individual severance calculations<br>Communication and change management

Legally compliant notices<br>Documented severance agreements<br>Employee communication materials

Timely notice delivery<br>Accurate payment processing<br>Positive employee relations

Post-Separation

Benefits transition management<br>Reference and transition support<br>Legal documentation maintenance

COBRA administration<br>Employment verification procedures<br>Compliance audit trails

Smooth benefits transitions<br>Reduced legal exposure<br>Maintained employer brand

Essential Documentation Framework:

International companies require robust documentation systems that support multi-jurisdictional compliance while maintaining operational efficiency. Essential documents include written severance policies that clearly define calculation methods, eligibility criteria, and approval processes. Individual severance agreements must incorporate appropriate legal releases while complying with state-specific consideration period requirements. WARN Act documentation requires meticulous record-keeping of notice timing, recipient lists, and government agency communications.

Communication Excellence Standards:

Effective communication during workforce reductions significantly impacts both legal compliance and employer brand preservation. International companies should develop communication templates that address cultural sensitivity, language considerations, and varying local expectations. Key communication elements include clear explanation of severance calculations, benefits transition procedures, and available support resources. Companies that excel in this area often provide multilingual resources and culturally appropriate support services that reflect their international workforce diversity.

Continuous Improvement Integration:

Leading international employers treat severance management as an evolving capability requiring regular updates and improvements. This includes monitoring legislative changes across operating jurisdictions, benchmarking severance practices against industry standards, and incorporating lessons learned from each workforce transition. Companies implementing continuous improvement approaches typically maintain relationships with employment law counsel in each major operating state, subscribe to legislative update services, and conduct annual policy reviews to ensure ongoing compliance and competitiveness.

How Foothold America Supports Your Severance Strategy

At Foothold America, we’ve helped hundreds of international companies navigate US employment law complexities since 2015. While we don’t provide legal advice on specific severance requirements, our comprehensive US expansion services support your workforce management through compliant, efficient employment structures.

Our US Expansion Support:

  • Employer of Record (EOR) Services – We handle all employment law compliance, including final pay processing, benefit transitions, and termination procedures in accordance with applicable state and federal requirements.
  • Professional Employer Organization (PEO+) Solutions – Our co-employment model provides shared liability protection and comprehensive HR support during workforce transitions.
  • Exclusive Talent Acquisition (ETA) Services – Our talent acquisition team understands market-competitive severance expectations and can help position your company appropriately during recruitment.
  • Multi-State Compliance Support – We manage employment obligations across all 50 states, ensuring your termination procedures meet varying state requirements for final pay timing and documentation.
  • Ongoing HR Advisory – Our experienced HR professionals provide guidance on employment law changes and best practices for international companies.

Your success in the American market depends on understanding these complex requirements while building sustainable employment practices. Our services deliver significant value through comprehensive compliance management, reduced administrative burden, and expert guidance on US employment law evolution.

For specific severance pay legal requirements and policy development, we recommend consulting with qualified employment law attorneys who specialize in multi-state compliance and international business needs.

 

Conclusion: Strategic Severance Management for Market Success

Severance pay requirements in the United States represent a complex intersection of federal mandates, state variations, and competitive market practices. For international companies, these requirements initially appear as compliance obligations but ultimately serve as strategic tools for talent management and employer branding.

The key insight for international businesses is that while the US doesn’t mandate universal severance pay, the combination of WARN Act requirements, state-specific mandates like New Jersey’s, and competitive market practices create a practical framework that requires sophisticated planning. Companies that approach severance strategically—integrating legal compliance with talent retention and employer brand positioning—consistently outperform those treating it merely as a cost center.

The regulatory landscape continues evolving, with states like New York proposing enhanced worker protections and companies voluntarily increasing severance generosity by over 70% in recent years. International companies establishing comprehensive severance frameworks now position themselves advantageously for future changes while building sustainable competitive advantages in American talent markets.

Understanding that US severance obligations emerge from multiple sources—federal WARN requirements, state-specific mandates, competitive market practices, and voluntary policy decisions—enables international businesses to design sophisticated strategies that protect legal compliance while supporting business objectives.

Ready to establish comprehensive severance management as part of your US expansion strategy? Contact our team of US expansion specialists today to discover how Foothold America can support your employment law compliance while accelerating your American market success.

 

Frequently Asked Questions About US Severance Pay

Get answers to all your questions and take the first step towards a US business expansion.

When facing termination of employment, your health insurance coverage and life insurance typically end on your last day of work. However, under federal COBRA health insurance laws, you may be eligible to continue your group health coverage for a limited period of time, though you’ll pay the full premium cost. The amount of severance pay your employer offers may help bridge this gap while you secure a new job. Some employers include extended health coverage and other insurance benefits as part of their severance benefits package, particularly for employees with years of service. It’s important to understand these options before your final paycheck, as the required notice period for COBRA enrollment is strict and affects your ongoing health coverage.

State laws vary significantly in determining whether employers must offer severance pay, which typically exceeds minimum wage calculations. New Jersey is currently the only state mandating severance benefits, requiring one week of pay for each year of employment for covered layoffs – far above minimum wage standards. Most other states don’t require severance pay but have specific rules about final paycheck laws and unused vacation time payments. The severance pay formula depends on your employment contract, company policy, employee handbook guidelines, and applicable state laws. While there’s no federal minimum wage requirement for severance, many employers use a combination of regular pay calculations and years of service to determine the weeks of severance pay offered to terminated employees.

Receiving severance pay can affect your unemployment benefits eligibility and unemployment compensation timing. The amount of pay you receive as severance may delay when you can start collecting unemployment benefits, depending on your state’s unemployment rate calculations and policies. Some former employers structure severance payments to minimize impact on unemployment claims, while others may affect your ability to file immediately. Your former employer and their employee’s representative should explain how offering severance pay impacts your unemployment claim. It’s a good idea to understand how your severance benefits interact with unemployment compensation before accepting any package, as this affects your financial planning during your new job search period.

Whether employers must pay accrued vacation time and unused vacation time varies by state laws and your employment contract terms. Some states require payment of unused vacation time regardless of termination circumstances, while others allow “use it or lose it” policies. When employers offer severance pay, they often include accrued vacation time in the calculation or pay it separately as part of final paycheck laws compliance. The employee’s representative or HR department should clearly explain what vacation time payments are included in your severance package versus what’s required by state law. This affects the total amount of severance pay you’ll receive and should be documented in your employee handbook or employment contract.

 

Beyond the core amount of severance pay, comprehensive packages often include extended insurance benefits such as continued life insurance coverage for a specific period of time. Many employers also provide transition support like career counseling and help with medical bills through extended health coverage. The employee handbook typically outlines standard severance benefits, but terminated employees may negotiate additional support based on their years of service. Former employees should understand how severance affects sensitive information obligations and required notice periods. Companies like Foothold America help international businesses structure compliant severance packages that include appropriate insurance benefits while meeting all federal and state requirements. This ensures former employers meet their obligations while providing meaningful support during the transition to a new job, making offering severance pay a strategic advantage in competitive talent markets.

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Complete the form below, and one of our US expansion experts will get back to you shortly to book a meeting with you. During the call, we will discuss your business requirements, walk you through our services in more detail and answer any questions you might have.

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