Impact of Severance Benefits on Unemployment Costs
So what impact does severance have on your unemployment costs as an employer?
Well, state regulation determines whether the type and amount of severance provided
will be qualifying or disqualifying when evaluating monetary eligibility for the UI
generally speaking, the amount of severance paid is used to reduce the
weekly benefit amount paid through the UI system based on a state defined calculation. Providing
severance benefits could very well reduce overall costs for the employer without negatively
impacting the ongoing income in severance and UI benefits a former employee receives
to support them through their transition period.
Continuing payments are those that are paid out over a period of time and are thus
allocated to specific weeks. Lump sum
payments can also be allocated to certain weeks even though paid all at one time.
If the employer makes a lump sum severance payment and does not allocate that severance
payment to a specific week or weeks, then the severance payment will reduce the unemployment
benefits only in the week in which the lump sum severance payment is made.
Again, the rules vary by state, so check with
your unemployment cost management service or with your state agency for rules where
you operate. Also, payments made along with allocation methods need to
be reported to the state agency in order for them to be considered when determining
A good portion of benefit charge errors come from failure to properly allocate severance
when determining monetary eligibility so be sure to also check those charge reports
to ensure your company has been properly charged by the state agency.
This weblog is sponsored by TALX.
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