Final paycheck, severance and keeping health insurance

The day you lose your job, three urgent questions arrive at once: when will your final paycheck come, will the company offer severance, and what happens to your health insurance? This guide walks you through each one, with the rules that actually apply in your state and practical steps you can take today.

Your Final Paycheck: Timing and State Law

Federal law does not set a specific deadline for your final paycheck. Instead, your state law decides when you must be paid. The baseline rule from the Fair Labor Standards Act (FLSA) is that employers must pay all wages earned by the next regularly scheduled payday, but many states have stricter rules.

Some states require same-day or near-immediate payment. California, Colorado, Massachusetts, Missouri, Montana, and Utah require employers to pay you immediately or within 24 hours of termination. Other states allow until the next scheduled payday or within 7 to 14 days. A few states—Alabama, Florida, Georgia, and Mississippi—have no state-specific final paycheck law, so the federal baseline (next payday) applies.

What You Must Be Paid

Your final paycheck must include all wages you have earned: every hour worked in the partial pay period, at the correct rate. If you worked overtime, those hours must be calculated and paid correctly. Federal and state laws both require this—an employer cannot withhold earned wages, no matter what disputes exist about equipment, training costs, or money you owe.

Accrued, unused vacation (often called PTO—paid time off) is treated differently depending on your state. Only five states (California, Colorado, Montana, Nebraska, and North Dakota) require employers to pay out all accrued vacation upon termination. In many other states, whether unused vacation is paid depends on your employer's written policy. Check your employee handbook or ask your HR department before separation.

What You Should Do

1. Look up your state's final paycheck law online (most state labor departments have a webpage with deadlines and rules).
2. Ask your employer when you will receive your final paycheck and confirm it will include all hours and overtime.
3. If your state allows it, ask about accrued vacation payout.
4. If you do not receive your paycheck by the deadline, contact your state's department of labor to file a wage claim.

Severance Pay: Optional, But Read Before You Sign

Federal law does not require employers to offer severance pay. Most at-will employees (who can be terminated for any legal reason) receive nothing beyond their final paycheck unless the employer chooses to offer it. Severance is a matter of agreement between employer and employee, not a legal right.

If your employer offers severance, it often comes with strings attached. The most common requirement is that you sign a release—a legal document in which you agree not to sue the company. These releases can waive your right to pursue claims for discrimination, wrongful termination, unpaid wages, or other violations. Some releases include non-compete or confidentiality clauses that restrict where you can work next or what you can say about the company.

The amount of severance varies widely and may be based on your salary, years of service, or rank in the company. You typically have at least 21 days to read and consider a severance agreement, and longer if you are part of a group termination. After you sign, it is very difficult to undo, so take time to understand what rights you are trading away.

Questions to Ask About Severance

• How much am I being offered, and how is it calculated?
• Are there strings attached (non-compete, confidentiality, release of claims)?
• Does this include payment for unused vacation?
• Will this affect my unemployment benefits?
• How long do I have to decide, and when will I be paid?

Health Insurance: COBRA vs. Marketplace

When you lose your job, your employer health insurance usually ends quickly—sometimes at the end of the month, sometimes immediately. You then have two main options: COBRA or a Marketplace plan.

What Is COBRA?

COBRA is a federal law that lets you stay on your employer's health plan for up to 18 months after you lose coverage due to job loss. This is the same exact plan you had while employed—same doctors, same drugs, same network. The key catch: you pay the full premium yourself.

When you were employed, your employer typically paid 70 to 80 percent of the premium, and you saw only your small payroll deduction. With COBRA, you now pay the whole amount—both what the company paid and what you paid, plus a 2 percent administrative fee. On average, COBRA costs 400 to 700 dollars per month for individual coverage and 1,500 dollars or more for family coverage. Some plans cost far more.

Marketplace Plans (ACA)

When you lose job-based coverage, you qualify for a Special Enrollment Period on the Health Insurance Marketplace (HealthCare.gov or your state's exchange). This is a 60-day window to enroll in a new plan. Unlike COBRA, Marketplace plans are not your old employer plan—you choose a new plan—but they are typically much cheaper, especially if you qualify for a subsidy (a tax credit that lowers your premium).

About 8 out of 10 people qualify for some premium tax credit. Your subsidy depends on your expected household income for the year. If you just lost your job, your income will be lower than last year, so you may qualify for substantial help. To estimate your subsidy, use the calculator at HealthCare.gov.

Comparing COBRA and Marketplace

• COBRA: Same plan, familiar doctors, high cost. Marketplace: New plan, possible different doctors, lower cost if you qualify for a subsidy.
• COBRA: No enrollment delay if you act fast. Marketplace: 60-day Special Enrollment Period window (use it or wait until next Open Enrollment).
• COBRA: 18 months of coverage (can extend to 36 in some cases). Marketplace: Coverage year to year, subject to annual enrollment.
• COBRA: Not eligible for tax credits or subsidies if enrolled. Marketplace: Often eligible for substantial subsidies based on income.
• COBRA: Best if you are in middle of surgery or specialist care. Marketplace: Best for long-term affordability, especially if your income dropped.

How to Enroll

Your employer must send you a COBRA election notice within 14 days of your coverage ending. You have 60 days from the date you receive that notice (or from the date coverage ends, whichever is later) to decide. If you elect COBRA, you have 45 days to pay your first premium, and coverage is retroactive to the date you lost coverage. You do not have to enroll in COBRA at all.

To enroll in a Marketplace plan, go to HealthCare.gov (or your state's exchange website if your state runs its own). Create an account, report that you lost coverage, enter your household income and size, and compare plans. You can enroll any time during your 60-day Special Enrollment Period. Once you pick a plan and pay the first premium, coverage can start as early as the first of the next month.

Do Not Lose the 60-Day Window

If you miss the 60-day Special Enrollment Period for the Marketplace, you cannot enroll until the next Open Enrollment Period (November 1 to January 15). Unless you qualify for Medicaid or the Children's Health Insurance Program (CHIP—available in some states), you will be uninsured for months. Mark the deadline on your calendar.

COBRA Extensions and Other Options

Standard COBRA lasts 18 months. You may qualify for longer coverage if you become disabled (Social Security Administration must determine you are disabled within the first 60 days of COBRA coverage—this adds 11 months, for a total of 29 months). You may also extend to 36 months if a second qualifying event occurs during your COBRA period, such as divorce, death of the employee, or loss of dependent status.

Some states offer their own continuation coverage (sometimes called 'mini-COBRA') that may last longer or have different rules than federal COBRA. California, New York, and Connecticut, for example, offer extended periods. Check your state's insurance department website if you live in one of these states.

Action Steps for Today

1. Find out when your final paycheck will arrive by checking your state's labor department website or asking your employer.
2. Ask your HR department if severance is being offered and request a copy of the agreement. Do not sign immediately.
3. Request the COBRA election notice and premium amount from your employer.
4. Within the first week, visit HealthCare.gov and enter 'I lost coverage' to see Marketplace plans and estimate your subsidy.
5. Compare the COBRA premium with Marketplace out-of-pocket costs and decide which option is better for your situation.
6. Enroll in whichever plan you choose before the 60-day deadline expires.