Core Elements Every Severance Agreement Should Include

While every company’s situation is unique, most agreements cover similar ground.

1. Consideration and Payment Schedule

• Defines the severance pay amount (lump sum vs. installments).

• Commonly based on years of service (e.g., one or two weeks’ pay per year worked).

2. Benefits Continuation

• COBRA eligibility or employer-subsidized health coverage.

• Sometimes includes continued access to wellness or EAP programs.

3. Return of Property

• Outlines when laptops, access cards, or company materials must be returned.

4. Confidentiality Agreement (Employment-related)

• Protects trade secrets, sensitive company information, and client data.

5. Non-Disparagement Clause

• Prevents either party from publicly criticizing the other.

6. Optional Clauses

• Non-compete or non-solicitation clauses (though enforceability varies by state).

• Outplacement support—this is where services like TurboTransitions can be offered as part of the package, giving employees AI-driven career coaching and networking opportunities to land faster in new roles.

7. Release of Claims

• A legal waiver where the employee agrees not to sue for claims related to employment.

• Must be carefully worded to comply with laws like the Older Workers Benefit Protection Act (OWBPA) when the employee is 40 or older.

Key takeaway: Think of these sections as the “skeleton” of a strong agreement. The details must be adapted by counsel, but missing any of these can leave gaps.

Severance Agreement vs. Separation Agreement

These terms are often used interchangeably, but some employers draw distinctions:

• Severance agreement – focuses primarily on financial and benefits terms.

• Separation agreement – broader, often addressing mutual obligations, reputation protection, and post-employment restrictions.

In practice, most HR professionals and attorneys treat them as the same. Don’t get hung up on the terminology. What matters is the content, not the label.

How Severance Pay Is Calculated

There’s no federal law that dictates severance pay, but common practice is to tie it to tenure. Typical formulas:

• One or two weeks of pay per year of service.

• Additional consideration for executives or long-tenured staff.

• Sometimes flat amounts for short-service employees.

According to the U.S. Bureau of Labor Statistics, only about 47% of private employers offer severance pay in formal plans【BLS.gov†source】. For HR teams, that means severance agreements are often a discretionary tool used to smooth transitions and reduce legal risk.

Key takeaway: There’s no universal calculator, but using a consistent formula across employees helps reduce perceptions of unfairness.

Why Use a Severance Agreement Outline Builder?

Drafting a severance agreement from a blank page is inefficient and risky. Here’s where an outline builder proves its worth:

• Pre-built structure – It provides common sections like payment terms, benefits continuation, confidentiality, and more.

• Neutral placeholders – Language is inserted in a way that avoids bias or enforceability issues until reviewed by counsel.

• Toggle options – HR can decide which clauses to include (non-disparagement, non-compete, etc.).

• Export options – Generate a ready-to-review PDF or DOC file for legal.

• “Counsel to-do” list – Highlights where legal review is required, making your attorney’s job faster and less costly.

Key takeaway: An outline builder doesn’t replace legal review—it makes it easier and cheaper by giving counsel a clear head start.

Lump Sum vs. Installment Severance

Employers often debate whether to pay severance in one check or spread it over time.

• Lump sum:

• Pros: Immediate closure, simpler admin, employee appreciates the upfront support.

• Cons: Larger cash outlay all at once.

• Installments:

• Pros: Easier for company cash flow, can stop payments if agreement terms are breached.

• Cons: Prolongs the relationship, may feel less generous to the employee.

Key takeaway: There’s no “right” answer—decide based on your financial situation and the message you want to send.

OWBPA Waiver Requirements for Employees Over 40

If the departing employee is 40 or older, the Older Workers Benefit Protection Act (OWBPA) sets strict requirements for a valid release of age discrimination claims.

It must include:

• Clear, understandable language.

• Explicit reference to rights under the Age Discrimination in Employment Act (ADEA).

• At least 21 days for the employee to consider signing (45 days in group layoffs).

• 7 days to revoke after signing.

Key takeaway: Missing OWBPA requirements can invalidate the agreement. Always highlight this in your counsel’s “to-do” list.

Using Outplacement as Part of Severance Packages

One of the most employee-friendly inclusions in a severance package is outplacement support. Rather than leaving employees to figure out their next steps alone, you provide access to career coaching and job search resources.

At TurboTransitions, for example, employees get access to PruE AI—an AI-powered career coaching platform—alongside human coaching sessions and networking opportunities. Employers who include outplacement often see smoother exits, stronger alumni goodwill, and less reputational risk on platforms like Glassdoor or LinkedIn.

Key takeaway: A few weeks of career support can cost less than one month of severance pay but deliver outsized impact for both sides.