Which states require severance pay? A guide for US employers

While some countries require employers to offer financial compensation when a working relationship ends, things are different in the US. Severance policies are usually at the discretion of the employer, as long as they are clearly outlined in the employment agreement.

That said, there are some exceptions and state-level laws that you need to be aware of. In this article, we’ll break down everything that you need to be aware of, helping you stay compliant, avoid surprises, and support your team through every step of the employment lifecycle.

What is severance pay?

To be clear, severance pay is compensation given when an employee leaves your company — typically due to layoffs or other involuntary reasons. The amount often depends on their seniority and time with the company.

Severance isn’t usually offered when someone resigns, and it can be withheld in cases of misconduct or poor performance, depending on the terms of the contract.

Is severance pay mandatory?

In short, no. There are no federal severance pay laws that dictate how much an employee should receive if they are terminated.

Instead, severance pay is typically a matter of agreement between the employer and the employee. This is often outlined in employment contracts, company policies, or collective bargaining agreements, rather than legislature.

However, as mentioned, there are a few exceptions, as follows:

New Jersey

Under the Millville Dallas Airmotive Plant Job Loss Notification Act, employees are entitled to severance pay if they are affected by mass layoffs or plant closures.

Employers must provide severance pay equivalent to one week's wages for each full year of employment to the affected employees.

Massachusetts

While Massachusetts does not have a general severance pay requirement, state law imposes protections for employees in specific industries.

For instance, if an employee's role is transferred to another country, the employer may be obligated to provide severance pay, depending on prior agreements.

To see a full breakdown of severance pay requirements by state, check out our free State Explorer tool:

What about the WARN Act?

Passed in 1988, the federal Worker Adjustment and Retraining Notification (WARN) Act requires employers (with 100 or more employees) to provide 60 days' advance notice of mass layoffs or plant closures.

While the WARN Act does not mandate severance pay, failure to provide the required notice can result in you being liable for back pay and benefits for the period of violation.

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What if you have employees in other countries?

It’s crucial to note that, while the US does not have severance package laws in most states, this isn’t the case abroad. In fact, many countries have strict rules and protections in place.

If you have employees outside the US and you need to terminate them, it’s vital that you adhere to the rules in their location — even if your company is based in the US.

If you work with a global employment partner like Remote, we handle all of this for you and ensure you are fully compliant. You can also check out our free Country Explorer tool to see a full breakdown of severance requirements in each country.

How do you create a severance policy?

As discussed, severance pay is usually dictated by the employer, and your severance policy should be included in every employee’s initial employment agreement. If you fail to honor this policy when an eligible employee is terminated, they can sue you for the wages owed.

As a result, it’s important to have a robust severance policy in place. Generally, you should take into account:

• The reason for termination

• The employee’s seniority

• Their length of service

• Their compensation structure

• Industry standards

• Your organizational needs

• Any special circumstances

A common severance policy is two weeks of regular pay for every year of continuous service. For example, an employee who earns $2,500 every two weeks and who has been at your company for seven years would receive $17,500 of severance pay ($2,500 x 7 years).

Note that your severance policy doesn’t have to be the same for everyone. Many companies use a standard framework (like the one detailed above), but it’s also common to negotiate different terms for executives or in specific cases.

That said, consistency matters. If policies vary too widely without a clear rationale, it can raise concerns around fairness.

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How can Remote help?

Whether you have employees in the US, abroad, or both, Remote ensures that you are fully compliant with all employment and payroll tax laws at every stage of the employment cycle — including offboarding and severance.

This is crucial, as one small mistake or simple oversight can leave your business exposed to costly legal action.

To learn more about how we remove all these legal headaches and give you peace of mind, speak to one of our friendly experts today.

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