Severance Pay in the Unemployment System
Pay – Allocating Benefits to a Specific Period of Time Can Reduce Your Costs
benefits are payments made to employees upon the termination of their employment.
Although severance payments are by no means mandatory, employers can elect to make
payments under a number of circumstances, based on their established employment policies.
The level of severance payments available to a former employee are often determined
by the duration of employment.
an individual files a claim for unemployment compensation, the state will always ask
if any severance pay was received as part of the terms of their separation from their
employer. In many states (but not all), severance pay is deducted from unemployment
benefits available during individual weeks of eligibility.
amount of pay reported, and most importantly, the time frames to which the payments
were allocated can have a significant impact on the benefits charged to you by the
the Decision to Allocate Severance Payments
regulations vary from state to state, allocating severance payments over a specific
number of weeks can delay the start of benefits and may ultimately reduce the duration
of benefits received by an individual. Should a former employee receive six weeks
of severance pay as part of the termination agreement, allocating those severance
payments over the six weeks immediately following the date of termination will result
in their not receiving benefits until the six weeks of severance have been exhausted.
1 – Severance Not Allocated: In
the situation described above, if severance payments were not allocated and the individual
remained unemployed for twelve weeks, they would receive 6 weeks of full pay and 12
weeks of unemployment benefits.
2: Severance Is Allocated: If
severance was allocated, the individual would receive 6 weeks of full pay, but only
6 weeks of unemployment benefits, following the exhaustion of the severance pay.
former employee would be receiving payments throughout the entire length of their
unemployment, but you would be charged for 6 fewer weeks of benefits. Multiply this
figure by the average weekly benefit amount of $296 dollars and you can easily see
the savings that can be generated.
the allocation of severance has no impact on an individual’s eligibility to receive
their unemployment benefits. As always, eligibility for benefits is based on an individual’s
reason for separation from their place of employment. Allocation of benefits simply
helps determine when those benefits will begin to be received.
note – in many states, severance is deductible only if it is allocated!
for state specific rules regarding the impact of reporting severance pay.
This weblog is sponsored by TALX.
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