A severance package is an agreement between you and your employer that you leave your job in exchange for financial compensation, often a few months' extra salary. You have no legal right to a severance package – it is negotiated. Before you sign, you should understand how it affects unemployment benefits and taxes.

What is a severance package?

A severance package (also called a severance agreement) is a voluntary agreement that your employment relationship ends. In return, you receive compensation. Employers often offer a severance package during downsizing to avoid a long and expensive conflict.

The content varies, but a severance package can include:

  • Severance pay – for example, three to twelve months' salary
  • Help finding a new job, such as courses or career counseling
  • A good final reference and an agreed-upon reference
  • Keeping equipment such as a computer or phone
  • Coverage of legal fees

For many who have come to Norway to work, a dismissal is extra stressful. At SamfunnPrep, we gather practical guides on work and labor immigration in Norway that help you understand your rights.

Do you have a right to a severance package?

No. No law gives you a right to a severance package. It is an offer the employer can choose to give, usually to avoid a lawsuit over the dismissal.

Your negotiating position is strongest if the dismissal could be unreasonable. An employer must have a good reason to dismiss someone, whether it is about downsizing or layoffs or something about you. If you are unsure whether the dismissal is legal, you should have it reviewed before you say yes to a package. If you are considering quitting yourself, there are separate rules for resigning on your own.

How large can a severance package be?

There is no fixed formula or minimum rate for how much you get. The size depends on, among other things, how long you have worked there, your age, the position, and how strong your case is.

As a rough guideline, many receive one to six months of severance pay, while long seniority can result in more. The most important thing is not the number in the first offer, but that you understand what you are negotiating about:

  • Ask for time to think – the first offer is rarely the last.
  • Negotiate for more than money – a good reference, a suitable end date, and help finding a new job can be very valuable.
  • Think about timing – spreading the payment over two tax years can reduce your taxes.
  • Use your union if you are a member; they often negotiate such agreements.

Severance package and unemployment benefits: the most important trap

This is the point most people get wrong. A severance package can delay or reduce your unemployment benefits from NAV (the Norwegian Labour and Welfare Administration) in two ways.

1. Extended waiting period if you «are at fault». If NAV says you voluntarily quit your job without a reasonable reason, you get an extended waiting period of 18 weeks before unemployment benefits start. If this happens several times within 12 months, the waiting period increases to 26 weeks. Therefore, it is crucial that the severance agreement clearly shows that it was the employer who took the initiative, for example through downsizing – not you.

2. Pay during the notice period. You cannot give up pay during the notice period and also receive unemployment benefits. If the severance package covers a period with pay, you normally do not receive unemployment benefits for that same period.

Good advice: Ask for the reason you are leaving (for example, downsizing) to be in writing in the agreement, and check the consequences with NAV before you sign.

Tax on severance packages

A severance package is subject to tax as regular salary. The tax exemption for severance compensation was abolished from the 2016 tax year, so today you pay tax on the entire amount.

A large lump sum can also be pushed up into a higher tax bracket. Some therefore arrange for the severance pay to be paid over several months, or distributed over two tax years. Talk to the Tax Authority or an advisor if the package is large.

Vacation pay, reference, and insurance

Remember to check what comes with you when you leave:

  • Vacation pay you have earned from your salary should be paid out. Pure severance pay you receive without working usually does not give vacation pay unless you agree otherwise.
  • You have the right to a written final reference under the Working Environment Act § 15-15.
  • Insurance and pension through work end when you leave. Investigate whether you should get your own arrangements, and check if you can continue pension savings on your own.

Deadlines if you disagree with the dismissal

If you believe the dismissal is unreasonable, you have short deadlines under the Working Environment Act § 17-4:

  • You must demand negotiation in writing within two weeks.
  • You must file legal action within eight weeks to have the right to remain in the position.

If you sign a severance agreement, you generally waive the right to challenge the dismissal later. Therefore, you should never sign under pressure at the actual meeting. You can bring a union representative or lawyer, and with low income you may have the right to free legal aid.

For you with a residence permit linked to work, this is extra important: losing your job can affect your stay. Read more about what happens when you lose your job and have a residence permit.

Checklist before you sign

  • Take your time. Do not sign at the meeting – ask for time to think.
  • Get the reason in writing (for example, downsizing), so you avoid an extended waiting period.
  • Check unemployment benefits with NAV before you say yes.
  • Calculate the tax on the lump sum.
  • Get help from a union representative, union, or lawyer.
  • Everything should be in writing. The agreement is binding when you have signed.

Workplace rights are also part of the curriculum for the samfunnskunnskapsprøven. If you want to better understand Norwegian working life, you can practice for free on SamfunnPrep.