ProFeds Founder, Chris Kowalik, explains the rules surrounding severance pay and who can expect to receive it if they are RIF’ed.
Key takeaways:
- Who is eligible to receive severance
- How to calculate approximate severance amount
- How severance pay is paid out
To Watch on YouTube, CLICK HERE
Additional Resources:
- Link to full RIF training series: FedImpact.com/RIF-training-series
- LINK to severance pay calc on OPM: https://www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets/severance-pay-estimation-worksheet/
- LINK to “Basic Pay” definition: https://www.ecfr.gov/current/title-5/part-550/section-550.703#p-550.703(Rate%20of%20basic%20pay)
- Local workshop locations and dates: FedImpact.com/attend
- To be introduced to a local financial professional: FedImpact.com/request-to-meet
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Transcript of this episode coming soon:
Originally released on 3/7/2025
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Federal employees are trying to sharpen their RIF vocabulary, and one of the things that we don’t talk about all that often is severance pay, how it works, how do you know if you qualify and if you do, how’s it calculated?
My name is Chris Kowalik. I’m the founder of ProFeds, and welcome to the Fed Impact Podcast where we offer candid insights on your federal retirement. So today’s episode is going to be all about severance pay and how it works.
Reduction in Force – Will I Get Severance Pay and How is it Calculated?
Severance pay is paid when an employee is involuntarily removed from government service. And they only get it if they’re not entitled to an immediate pension. If you’re involuntarily removed, but you qualify for an immediate pension, one that’s going to be paid right away, you have no right to severance pay.
For instance, if you qualify for an early out, you would not be entitled to severance. Same thing with the voluntary separation incentive payment. That is the cash buyout. Remember, severance is for an involuntary removal. The V in VSIP stands for voluntary. So if you take that cash buyout of the 25,000 or the 40,000, depending on your agency, you will not get severance pay on top of the VSIP plan.
How Severance Pay is Paid Out
How does it work? How does severance pay get calculated and how is it paid to you? So it’s paid to you as a continuation of your normal pay for a certain number of weeks. Your pay will continue like it always has. So you’ll see those regular deposits probably bi-weekly if that’s how you’re compensated right now, and you should know that there’s a max of 52 weeks of severance pay that you can collect. The severance pay is calculated based on your basic rate of pay, which includes your normal pay that’s on the pay table, as well as any locality pay and specialty pay that you might receive.
It gets a little complicated. We’re going to link to the OPM site in the show notes. If you are right there on the site, if you’re on YouTube, if you’re in any of these podcast platforms, you’ll be able to go to the more section and be able to see those special links. Otherwise, we’ll give you the instructions on how to get the show notes closer to the end of today’s episode.
You can break down all the different types of pay that you have to make sure that you know exactly what gets included in that basic pay. When we think of groups like law enforcement officers that have availability pay, all of that we know is included, but each of you might have some special types of pay that you’re wondering if it counts or not. We’ve got the perfect resource for you.
How Severance Pay is Calculated
How is it calculated? How does the government know how many weeks to continue to pay you? Well, there’s a very specific calculation. And leave it to the government, it’s almost like doing taxes to be able to figure out how much your severance is going to be. But here’s how it works.
For the first 10 years of service that you’ve had with the government, you get one week per year for severance. So if you’ve been with the government exactly 10 years, you’re going to get 10 weeks of severance pay. For any time that you had above those 10 years, you get two weeks.
Those years end up being more valuable to you in the severance calculation. And then there’s a fractional element. Basically for every additional quarter that you work aside from a full year, you’re going to get a little extra bump. It’s nothing significant. It’s just a fractional portion of the year.
Then something kind of interesting happens with severance, there’s an age multiplier attached to it, you’ll get an extra two and a half percent of your severance pay, so just a fractional element, for every three months or every quarter that you are over the age of 40.
I won’t bore you with a table of how that works. Of course, in an audio version that’s really tough to do, but we’ve linked to it in the show notes so you can see exactly what that table looks like and be able to see the calculation. But let me give you the cliff notes version.
If you are 40 or under, your multiplier is one, meaning you get 100% of whatever the severance was that we previously calculated based on the number of years of service that you’ve had.
If you get to 50, you’re now at double the severance pay. If you get to 60, you’re at triple the severance pay. That’s just how the math works out in that age multiplier. There are too many different aspects that we could look at here on today’s episode, but I encourage you get to the show notes for the podcast and we’ll link directly to the severance pay worksheet that OPM has put together. It’s basically a fill-in-the-blank. Again, it feels a little bit like doing taxes old school, but you’ll at least have that and be able to see some examples there as well.
Example
Let me give you just a quick example. Let’s say you’re 50 years old and you have 12 years of service. For your first 10 years of service, you’re going to get 10 weeks, one for one. For the additional two years of service, remember, you get two weeks for each of those years. We have a four-week element there. We have a total of 14 weeks in the original severance calculation. But then we look at that age multiplier, and I’ve already mentioned that at 50, you get double the severance, and it’s not like you have to get all the way to 50.
This is an incremental change. I’m just kind of giving you the big cliff notes version of this. But in this case, with 14 weeks in the original severance calculation and knowing that because of their age, they have a two-time multiplier, they now get 28 weeks of severance pay. That’s basically how it goes. Check out that worksheet, it’s in the show notes so that we can be able to help you out.
When you receive that severance pay, you need to be prepared that income taxes and social security tax are going to be removed from it. And it’s important to know that if you were to be rehired quickly back to the government and you’re still receiving severance pay, that will stop immediately. I want to make sure that you understand so there are no surprises.
Anything we can do to help you get your numbers straight and understand how all these benefits work. That’s the name of the game here at ProFeds, and so we’re delighted to have you on this journey to try to figure out all these pieces. And severance always is an important one when we’re in a RIF cycle. Definitely a lot to learn. I hope that you’ll check out the other videos within this series to make sure that you get all of your questions answered.
Get Connected & Next Steps
To stay connected to us, not just through the podcast platform, but through email updates and that type of thing, please pull out your phone and text the word podcast to 224-444-6144. We’ll get all nice and connected. You’ll have access to all the tools and resources that we have built for federal employees. You’ll be able to access the retirement workshop schedule so you can see where we are live so that you can come out to training.
We also have a slew of webinar replays that we have done in the past that are quite helpful for federal employees, even in times like this, where there’s a lot of complexity with respect to a RIF, and we have podcast episodes and articles that we write on a wide variety of different topics. Hopefully you’ll find exactly what you need in this series. Subscribe here on the podcast player that you’re listening to so that more of us show up in your feed.
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