Does severance pay reduce or relace unemployment benefits?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Does severance pay reduce or relace unemployment benefits?

Post by MnD »

My wife was laid off today and granted 7 weeks of severance pay at her current salary paid bi-weekly.
I went to the State unemployment claim web site and they indicated.....

Vacation, Severance, Pension or 401(k)
If you received vacation, severance, pension, 401(k), or some other form of payment from your employer, you may have to wait to be paid unemployment benefits.
You will receive a Notice of Decision if this happens.


That's pretty vague. Usually does severance pay have to run out before unemployment benefits can be received?
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
livesoft
Posts: 86077
Joined: Thu Mar 01, 2007 7:00 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by livesoft »

Generally yes. I think because every severance package is different, the State cannot have truly blanket statement. For example, if the severance pay is less than unemployment benefits, probably one would get the difference. However, if the pay is more than unemployment benefits, one would not get the unemployment benefits.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Cut-Throat
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Does severance pay reduce or relace unemployment benefit

Post by Cut-Throat »

MnD wrote:My wife was laid off today and granted 7 weeks of severance pay at her current salary paid bi-weekly.
I went to the State unemployment claim web site and they indicated.....

Vacation, Severance, Pension or 401(k)
If you received vacation, severance, pension, 401(k), or some other form of payment from your employer, you may have to wait to be paid unemployment benefits.
You will receive a Notice of Decision if this happens.


That's pretty vague. Usually does severance pay have to run out before unemployment benefits can be received?
Actually, I live in Minnesota and my wife was in the same position last year. She was laid off in Dec. She got severance pay (6 months) thru May of this year in one lump sum in January. She did not get unemployment until after the severance ran out in late May. She applied in January and they sent the 'ruling' at that time. She did not start collecting until 5 months later
User avatar
Steelersfan
Posts: 4129
Joined: Thu Jun 19, 2008 8:47 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by Steelersfan »

In my state you don't get unemployment while you're getting severance.

But my company did a creative thing and put the money for severance in a trust fund separate from the company and paid out of that so folks can get both at the same time.

i don't know if they still do that since I've been retired a few years, but it was the practice for at least a decade while I was employed there
User avatar
joe8d
Posts: 4545
Joined: Tue Feb 20, 2007 7:27 pm
Location: Buffalo,NY

Re: Does severance pay reduce or relace unemployment benefit

Post by joe8d »

I'm in NY. In my case I received Serverance including vacation pay in one lump sum and was able to draw my UI immediately.
File for UI and let them make the determination.
Last edited by joe8d on Fri Jul 25, 2014 8:23 pm, edited 2 times in total.
All the Best, | Joe
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Does severance pay reduce or relace unemployment benefit

Post by Calm Man »

OP, do what you must with finding this out. I will divert the thread a bit. More important than the few hundred a week she will get for 26 weeks is to have her find the next job. She will if she focuses her efforts in that direction. Good luck to her.
Hug401k
Posts: 408
Joined: Fri Mar 28, 2014 7:49 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by Hug401k »

I believe it depends on the state. I received a severance and unemployment at the same time in MA. I seem to remember them asking me if I was receiving anything, and that I may have to wait, but when I actually filed, I did not. And for me, I received more than a few hundred bucks. It was helpful. I do think you can't file for 2 weeks though.
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

She was hired around the times of the first hint of the Great Recession after staying home with kids for many years.
Very lucky timing as just a few months later top notch pros in her area were looking for anything.
Laid off (company is going down the tubes due to very specific reasons) in a very strong local economy and in those 7 years her marketable skills are up hugely.
So we are optimistic. :happy

Thanks everyone for the input.
The outcome of following the Boglehead philosophy makes this painful experience at lot better than it otherwise could be.
That is sure making itself clear today.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
123
Posts: 10415
Joined: Fri Oct 12, 2012 3:55 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by 123 »

A potential advantage of receiving severance over time instead of a lump-sum is that while you are still on the severance "payroll" you may still be likely to get health benefits at employee rates. When severance payments end then the COBRA period normally begins and you will likely have to pay 100% of health insurance premium.
The closest helping hand is at the end of your own arm.
User avatar
Cut-Throat
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Does severance pay reduce or relace unemployment benefit

Post by Cut-Throat »

123 wrote:A potential advantage of receiving severance over time instead of a lump-sum is that while you are still on the severance "payroll" you may still be likely to get health benefits at employee rates. When severance payments end then the COBRA period normally begins and you will likely have to pay 100% of health insurance premium.
Not for us or for most people. I think COBRA has been replaced by the ACA. The ACA started the month she lost her health coverage!!
A Godsend!
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

She loses her health coverage 7/31 (which also covers the kids) so we had 5 days to figure something out.
Our HR said her loss of coverage was a qualifying event to make an immediate change in my coverage from self to family.
So Monday we are all on my insurance. Whew........
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
User avatar
mmmodem
Posts: 2628
Joined: Thu May 20, 2010 1:22 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by mmmodem »

We are in California. DW's severance did not reduce or replace severance. She was paid in a lump sum. She applied for unemployment immediately after she was laid off. The application form will ask about severance. We also switched the family health insurance to my employer. It actually went pretty smoothly.
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 3:49 pm
Location: Charlotte NC

Re: Does severance pay reduce or relace unemployment benefit

Post by cherijoh »

Unemployment benefits rules are definitely state by state. I know it may also depend on the company. Some companies will tell their employees they won't "dispute" an unemployment claim and to go ahead and apply. As long as you are honest about what severance she is receiving there isn't an issue with applying. What have you got to lose?
User avatar
rpike
Posts: 476
Joined: Mon Mar 19, 2007 10:14 pm
Contact:

Re: Does severance pay reduce or relace unemployment benefit

Post by rpike »

Been thru this a few times in MA. Severance is considered "disqualifying" for UI meaning it delays eligibility to start UI; however, there was an exception. If you had to sign a release of claims against the employer, which I gather is pretty standard these days, whatever payment was subject to the release is not disqualifying.

Another Rick
Last edited by rpike on Sat Jul 26, 2014 11:04 pm, edited 2 times in total.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

cherijoh wrote:Unemployment benefits rules are definitely state by state.
As are divorce laws and standard real estate practices. Questions that depend on your state depend on your state.

If the Mn in the OP's name stands for Minnesota, the answers should be Minnesota specific.

This seems pretty clear (don't you love the internet?):
Income That Reduces or Delays Payment
Certain types of income may delay or reduce weekly benefits. However, the maximum amount of benefits available is not reduced. If you have applied for, or are receiving, any of the following types of income, you must report it to the Minnesota Unemployment Insurance (UI) Program.

Severance pay, wages in lieu of notice, retention pay, or any other payments made because of separation from employment

After separation from employment, you are not eligible for unemployment benefits for the number of weeks of your regular pay the severance payment represents.
http://www.uimn.org/uimn/applicants/aff ... /index.jsp

If MnD doesn't live in Minnesota, we should be told where MnD does live. My guess is that they have the internet there, just as they do in Minnesota.
chead
Posts: 45
Joined: Fri Jul 26, 2013 2:08 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by chead »

You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
User avatar
joe8d
Posts: 4545
Joined: Tue Feb 20, 2007 7:27 pm
Location: Buffalo,NY

Re: Does severance pay reduce or relace unemployment benefit

Post by joe8d »

chead wrote:You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
Yes.VERY important point and was the case in my situation.
All the Best, | Joe
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

chead wrote:You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
Excellent point! Thank you!
It's a 7 page contract waiving pretty much rights to sue for anything and with many other conditions she has zero problems with, in exchange for this post-employment compensation.
She does not have a non-compete clause, nor does the agreement add one. And the agreement indicates they will not contest her application for unemployment.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
IlliniDave
Posts: 2388
Joined: Fri May 17, 2013 7:09 am

Re: Does severance pay reduce or relace unemployment benefit

Post by IlliniDave »

In my state they essentially treat you as if you're still employed for as long as you are receiving severance payments. Once they stop, you can then receive unemployment insurance payments. People typically file right away and provide whatever they have in writing regarding severance benefits. I haven't been through the process myself, but have a friend that did about three years ago.
Don't do something. Just stand there!
mur44
Posts: 718
Joined: Tue Feb 27, 2007 8:30 am

Re: Does severance pay reduce or relace unemployment benefit

Post by mur44 »

In New Jersey and New York states, severance pay
does NOT affect your right to collect Unemployment
benefits.

You are no longer employed and therefore you
are entitled to collect UI benefits.


Disclosure: I am a resident of NJ
johnubc
Posts: 870
Joined: Wed Jan 06, 2010 5:54 am

Re: Does severance pay reduce or relace unemployment benefit

Post by johnubc »

Cut-Throat wrote:
123 wrote:A potential advantage of receiving severance over time instead of a lump-sum is that while you are still on the severance "payroll" you may still be likely to get health benefits at employee rates. When severance payments end then the COBRA period normally begins and you will likely have to pay 100% of health insurance premium.
Not for us or for most people. I think COBRA has been replaced by the ACA. The ACA started the month she lost her health coverage!!
A Godsend!
Not true - COBRA is still around and kicking and has not been replaced by ACA.
User avatar
Steelersfan
Posts: 4129
Joined: Thu Jun 19, 2008 8:47 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by Steelersfan »

johnubc wrote:
Cut-Throat wrote:
123 wrote:A potential advantage of receiving severance over time instead of a lump-sum is that while you are still on the severance "payroll" you may still be likely to get health benefits at employee rates. When severance payments end then the COBRA period normally begins and you will likely have to pay 100% of health insurance premium.
Not for us or for most people. I think COBRA has been replaced by the ACA. The ACA started the month she lost her health coverage!!
A Godsend!
Not true - COBRA is still around and kicking and has not been replaced by ACA.
That's true.

It's possible though that you might get a better policy and/or rate than what your company's plan offers. You'll only know if you compare the two. Loss of employment is one of the events that allows you to sign up for an ACA compliant plan outside of the normal annual fall sign-up period.
User avatar
LadyGeek
Site Admin
Posts: 95696
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Does severance pay reduce or relace unemployment benefit

Post by LadyGeek »

chead wrote:You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
Thanks! Can you point to a legal basis? I know a few people who's positions are being terminated now. They're given severance, but I'm not sure if it's contingent upon signing of a release form. If it is, I'll give them the ammo to make a few waves. This is for PA and NJ.

PA has a salary threshold and withholding period based on your severance. Severance/Pension Pay Deductions FAQs

From the The PA Unemployment Compensation Handbook (UCP-1):
Severance Pay: Severance pay means one or more payments your employer makes to you because of your separation from your employer.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

LadyGeek wrote:
chead wrote:You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
Thanks! Can you point to a legal basis?
I too would like one. I have searched the DOL website and the USCode, both 42 and 26, but can't find any federal definition of severance with exceptions for an agreement where you waive your rights. Is this particular to MnD's state of residence?
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

The more I read from various sources the more I think _not_ declaring periodic post-separation payments (refereed to in the separation agreement as severance pay) as severance pay when collecting UI benefits due to the agreement is skating on thin ice.
"Usual and customary payroll deductions will be withheld". So the paper trail on the payments is wide and visible.
And of course the amounts are such that retaining an attorney would constitute a very significant "load" on the potential savings. :annoyed

LadyGeek wrote:
chead wrote:You should make sure that it is technically severance that she is receiving. Some companies make you sign paperwork waving your right to sue for wrongful termination and/or reaffirm your non-compete/NDA/non-dsiparagement clause. If the company makes her "severance" contingent upon signing something like that, it's not really severance. Technically, you are getting paid in exchange for waving your rights and not as severance. In that case, you can collect unemployment starting immediately.
Thanks! Can you point to a legal basis? I know a few people who's positions are being terminated now. They're given severance, but I'm not sure if it's contingent upon signing of a release form. If it is, I'll give them the ammo to make a few waves. This is for PA and NJ.

PA has a salary threshold and withholding period based on your severance. Severance/Pension Pay Deductions FAQs

From the The PA Unemployment Compensation Handbook (UCP-1):
Severance Pay: Severance pay means one or more payments your employer makes to you because of your separation from your employer.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

MnD wrote:The more I read from various sources the more I think _not_ declaring periodic post-separation payments (refereed to in the separation agreement as severance pay) as severance pay when collecting UI benefits due to the agreement is skating on thin ice.
"Usual and customary payroll deductions will be withheld". So the paper trail on the payments is wide and visible.
And of course the amounts are such that retaining an attorney would constitute a very significant "load" on the potential savings. :annoyed
LadyGeek wrote: PA has a salary threshold and withholding period based on your severance. Severance/Pension Pay Deductions FAQs

From the The PA Unemployment Compensation Handbook (UCP-1):
Severance Pay: Severance pay means one or more payments your employer makes to you because of your separation from your employer.
Does quoting LadyGeek's PA reference mean that you live in Pennsylvania?
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

No, I now think the mystery state is Colorado. Is that correct?
User avatar
Ged
Posts: 3945
Joined: Mon May 13, 2013 1:48 pm
Location: Roke

Re: Does severance pay reduce or relace unemployment benefit

Post by Ged »

The answer to this question depends on the state you live in. For NJ there is no delay due to severance. If you are under contract and the contract is still in force it isn't considered severance in NJ.
dolphinsaremammals
Posts: 2094
Joined: Tue Jul 22, 2014 4:18 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by dolphinsaremammals »

I was laid off in California years ago as part of a group layoff. HR and the unemployment office determined that we also qualified for unemployment insurance despite receiving three months; severance pay. I didn't attempt to figure out how this happened.

Update:
rpike wrote:Been thru this a few times in MA. Severance is considered "disqualifying" for UI meaning it delays eligibility to start UI; however, there was an exception. If you had to sign a release of claims against the employer, which I gather is pretty standard these days, whatever payment was subject to the release is not disqualifying.
This may be what happened in our case. We had to sign saying we would not sue, in order to get the severance pay.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

dolphinsaremammals wrote:I was laid off in California years ago as part of a group layoff. HR and the unemployment office determined that we also qualified for unemployment insurance despite receiving severance pay. I didn't attempt to figure out how this happened.
Because that is the law in California. No determination was required. It is very clearly laid out on the appropriate website. All the legal definitions are discussed and the webpages are full of citations of relevant court cases. I know because I looked. It was clear that California is not the mystery state that MnD lives in. Perhaps MnD's mystery state has an equally informative website.

Here is the CA law and interpretation.
Total and Partial Unemployment TPU 460.35

Severance Pay, Dismissal or Separation Pay

Severance pay is not wages for unemployment insurance purposes. There is no specific code section in the California Unemployment Insurance Code which declares that severance pay is not wages. We cite Section 1265 when we state that severance pay is not wages. The authority for doing so is based on a case decided by the California Supreme Court in 1965.

Powell

The California Supreme Court held in Powell and Byrd vs. California Unemployment Insurance Appeals Board (63 Cal. 2d 103, 1965) that dismissal and severance payments were not wages for unemployment insurance purposes.

In the Powell case employees were laid off and placed in a standby status. In the Byrd case, employees were permanently terminated as the employer discontinued operations. The terminated employees received severance pay or dismissal pay benefits in accordance with the collective bargaining agreements which were in effect.

The terminated individuals filed claims for unemployment insurance benefits and the Department disqualified the claimants as it held that the severance pay and dismissal pay were wages and were allocable to the period following termination of the employment relationship. The claimants filed appeals from the denial of benefits. The Department was affirmed on appeal.

The claimants initiated court proceedings and the California Supreme Court issued its decision on June 30, 1965. In its decision, the Court held that the first issue to be decided was whether the claimants were "unemployed" within the meaning of Section 1251 and Section 1252 of the Unemployment Insurance Code.

The Court cited Section 1252 which provides, in part, that an individual is "unemployed" in any week during which he performs no services and with respect to which no wages are payable to him. The issue to be decided was whether the severance pay and dismissal pay were wages and, if so, whether the wages were allocable to the period immediately following termination.

The claimants argued that the severance pay and dismissal pay were not wages "because such payments are not compensation for services but rather are partial compensation for the loss of anticipated future earnings, the present necessity to retain and acquire new skills, and the need to seek and acquire new jobs without seniority rights." The claimants argued that the severance and dismissal payments were not made with respect to any particular week but were based on services performed prior to termination.

The claimants argued that the severance pay and dismissal pay were distinct from vacation pay and in-lieu-of-notice pay as the employees did not have a vested right to receive the severance pay or dismissal pay. The claimants argued that these payments (severance and dismissal pay) were different since the collective bargaining agreements separately provided for vacation pay and in-lieu-of-notice pay.

The Court noted that it had previously considered the question of whether severance pay was wages in Bradshaw vs. California Employment Stabilization Commission (46 Cal. 2d 608, 1946). In that case the Court had held that severance pay was wages and that the wages were allocable to the period immediately following the termination of the employment relationship. In its reasoning, the Court stated that there should not be a duplication of benefits and that unemployment compensation benefits were not intended to protect employees already protected for the same period of time by their private contracts.

The Court stated it was not necessary to reexamine Bradshaw to determine whether the findings in Bradshaw would apply to the two cases it was then considering. The Court said there was no need to reexamine Bradshaw because the principles cited in Bradshaw, i.e., no duplication of benefits, were set aside by the enactment of Section 1265 in 1959

The Court noted that the Legislature in 1959 had enacted Section 1265 of the Unemployment Insurance Code which provided, in part:

"Notwithstanding any other provisions of this division (which includes Sections 1251 and 1252), payments to an individual under a plan . . . established by an employer . . . for the purpose of supplementing unemployment compensation benefits shall not be construed to be wages . . . and benefits . . . shall not be denied . . . because of the receipt of payments under such . . . plans. This amendment is hereby declared to be merely a clarification of the original intention of the Legislature and is not a substantive change, and is in conformity with the existing administrative interpretation of the law."

The Court stated that supplementary unemployment benefit plans were not the only such plans covered by Section 1265. The Court stated that the legislative intent contained in Section 1265 was sufficiently broad to include within its language the dismissal and severance payments in the two cases under consideration.

The employer and the Board in their arguments before the Court contended that the provisions of Section 1265 should be limited to particular types of payments under plans which expressly declare the intent of the payment is to supplement unemployment compensation benefits. They contended that since the collective bargaining agreements which provided for the severance pay and dismissal pay benefits did not state the purpose for the payment was to supplement unemployment insurance benefits, the payments should not come under the provisions of Section 1265.

The Court held that to determine what something was by the label which had been given it was to put form before substance. The Court stated: "To resolve the issue according to the label attached, as respondents urge, would accord greater weight to form than to substance and such a resolution is not in keeping with the obvious legislative intent expressed in Section 1265 to broaden the coverage of unemployment insurance benefits."

The Court concluded that the severance pay and dismissal pay benefits in the two cases under consideration were not wages but were a form of supplemental unemployment compensation benefits.

Severance Pay Criteria

A payment made at termination to a terminated employee constitutes severance pay if the following conditions are met:

The payments are made in accordance with the provisions of a company plan or policy.
The plan or policy provides for payment to employees who are terminated for specific reasons, e.g., job elimination, reduction in force, closure, etc.The payments are available to a class or group of employees.
The plan need not be available to all employees for the payments to constitute severance pay, but they must be available to a class or group of employees, e.g., to salaried employees, to hourly employees, to represented employees, to management, etc.The purpose of the payment must be to supplement unemployment insurance benefits.
The plan may not specifically state the purpose for the payment. If it does, it need not specifically state the purpose is to supplement unemployment insurance benefits.
Some of the reasons that employers put forward for the plans are, for example, "to recognize past services," "to provide additional financial assistance while the employees seek other work," "to provide a bridge between jobs," to help ease the trauma of unemployment," "conscience money," etc.

We would consider the purpose is to supplement unemployment insurance benefits if an employer gives one of the above reasons as the purpose for the payment.

Whenever there is a question as to whether a payment made to an employee under an employer benefit plan is wages, the purpose for the plan must be viewed in relation to Section 1265. The interviewer must establish what the payment is for, why the employer is making the payment, whether the individual must do anything to receive the payment, etc.

If it is determined that the payment comes within the provisions of Section 1265 of the UI Code, the payment is not wages for unemployment insurance purposes. The method of payment, i.e., lump sum or periodic, does not determine what the payment is. Whether a payment is made in a lump sum or periodically is immaterial in deciding whether the payment is wages. Whether there is an employer plan, whether the individual must do anything to receive payment under the plan, and the purpose for the payment are the deciding .factors in determining whether the payment comes within the provisions of Section 1265.

Citroen

For many years severance pay was paid out in a lump sum, but over the years that practice has changed. Increasingly, employers pay the severance pay which is due at regular pay period intervals.

The California Court of Appeal in Citroen Cars Corporation vs. California Unemployment Insurance Appeals Board (107 Cal. App. 3rd 945, 1980) addressed the issue of whether periodic payments made to terminated employees were severance pay or whether the payments constituted wages.

In this case the company decided to close its plant located in Los Angeles. The closure was effective December 31, 1977. The company had no formal policy requiring payment of severance pay or termination pay to employees who were laid off. Previously, the company had informally, on occasion, paid termination pay to employees who were laid off.

The company developed a plan for this closure. On December 30, 1977, the company notified the employees their employment was terminated effective December 31. The company advised the employees it would pay what it called severance pay to all employees who were terminated due to the plant closure provided they signed a release acknowledging that the payment was made in full satisfaction of all claims the employees might have against the company.

The amount of severance pay an individual was eligible to receive was based on length of service with the company. The company advised the employees it would pay the severance pay periodically and that benefit coverage would continue through the period covered by the severance pay.

Two individuals filed claims for benefits and the Department determined the payments were severance pay. The employer appealed from the decision. The Department's decision was affirmed by an administrative law judge and later by the Board.

The employer filed a petition for a writ of mandate seeking to have the Board reverse its decision. The employer contended that it was not the company's intention to supplement unemployment insurance benefits but to replace them. The employer argued that since the payments were being made periodically, they were wages as set forth in Precedent Benefit Decision P-B-4.

In support of its position, the employer argued that the pay was not severance pay because the company did not have a policy which required the company to make the payments and the employees had a vested right to receive the payments.

The court held that the payments were clearly not wage continuation pay as defined in P-B-4 since (1) the payments were available to a class or group of employees and (2) the payments were made in accordance with a plan which the company developed for the closure.

The court stated that Section 1265 did not set forth any requirements with respect to when a plan must have been established nor how long it must have been in effect to come within its terms. In addition, the court held the employees did not have a vested right to the payments since they were required to sign a general release and did not receive the payments if they did not sign the release.

The court concluded that the payments made by the employer were, in fact, severance pay and not wages.

Thus, payments which are made at regular pay period intervals and which are made pursuant to a company plan which provides for such payment to a class or group of employees are severance pay and not wages notwithstanding the fact that the employer continued benefit coverage for the period covered by the payments.

There are other types of separation payments which do not come under the provisions of Section 1265, and yet are not wages.

For example, in Benefit Decision 6502, the Board considered the case of a claimant who received eight weeks' "severance pay" at the time the claimant reached the employer's retirement age. The Board held that this "severance pay" was not wages, and said:

"Section 932 of the Code provides as follows:

932. "Wages" does not include any payment made to an employee on account of retirement, including any amount paid by an employer for insurance or annuities, or into a fund to provide for any such payment.

The only reason for the payment to the claimant of the so-called "severance pay" was "on account of retirement" of the claimant. Therefore, we hold that such payment was not in fact severance pay and was not included in the term "wages" because of the provisions of Code Section 932."

In Benefit Decision 6505, the employer planned to move his plant from Los Angeles to Stockton at the end of the 1955-1956 season. In order to prevent a mass exodus of workers and a consequent disruption of company operations during the 1955-1956 season, the collective bargaining agreement was supplemented by the following agreement:

"A. An employee who becomes surplus and is permanently laid off because of the Association's move to Stockton shall be eligible for dismissal pay provided he meets the following conditions:

1. He shall have been on seniority status since September 1, 1955, or earlier.

2. He shall remain on his job with the Association until released by his department head."

The Board held that these payments were wages, and said:

"Although the amounts paid were designated as dismissal pay in the collective bargaining agreement, it is apparent that the major purpose of the payments was to provide an incentive for the claimants to hold themselves available for employment during the 1955-1956 season and not a duplication of unemployment insurance benefits. Accordingly, we find that the payments involved herein were in the nature of a bonus . . . and properly allocable to the period prior to the termination of employment."

The Board, in Benefit Decision 6509, considered the claims of employees of a feed mill. The feed mill ceased operations and the claimants were discharged. The claimants' union requested, but was refused, severance payments for the employees. Later the employer's executive committee held a meeting and decided to make "termination or dismissal" payments to the claimants. The Board held that these payments were bonuses and allocated to the period prior to termination. The Board said:

"With respect to the payments of $500 made to the other three claimants, the employer designated them 'severance pay. However, this designation did not necessarily establish them to be severance pay . . . . Unlike severance pay which is paid at the termination of an employee's services in order to tide him over a period of unemployment, these payments were made some weeks following the severance of the employment relationship . . . . Additionally, the employer had rejected the union's solicitation for severance pay but thereafter, on its own initiative and without any legal obligation, had decided to give $500 to certain selected employees because of their years of service with the organization. Based on these facts, we hold that the payments were bonuses earned during the claimants' periods of employment and as such were wages allocable to the respective periods prior to termination of their employment."

In each of the above cases, the separation pay was found, on closer inspection, not to be a type of severance pay, but either a bonus, or retirement pay.

Lump-sum payments are paid to certain designated military officers who are retired involuntarily. The purpose of the payments as stated by the Senate Committee on Armed Services is as follows

"It should be emphasized that the committee does not intend that the lump-sum payment should be considered a precedent. The committee recognizes that there is no statutory obligation to provide the lump-sum payment for the noncontinued regular officers. At the same time, the necessary legislation in altering the normal retirement point for these officers, creates some hardship in changing the long-term career plans of these officers. The purpose of this payment is to provide some assistance in adjusting to the necessary changes in their return to civilian life."

Since it is clear that the intent of the lump-sum payment is to provide assistance to the officer in readjusting to his premature and unexpected release to civilian life, the payment is not in the nature of a bonus payment "on account of retirement" as that term is used in Section 932 of the Code. Although the payment involved here is made at the time of the forced retirement, it is not in addition to and incidental to the retirement and is not made on account of or because of retirement. Therefore, the lump-sum payments are severance or dismissal payments made according to a plan for the benefit of the officers, and thus come within the provisions of Section 1265. Because Section 1265 applies, these payments are not deductible wages, and the claimants are not ineligible for benefits because of receipt of these payments.

Certain federal civilian employees may be eligible for severance pay under Section 9 of Public Law 89-301, Federal Employees Salary Act of 1965. The same rule that severance pay is not wages is applicable to these employees who may be in receipt of severance pay.

The receipt of accrued leave pay does not affect an ex-serviceman's eligibility for benefits. This applies to UI and UCFE claims as well as UCX.
Wage Continuation Pay

Under special circumstances, payments which at first might be thought of as severance pay, will, under closer investigation, turn out to be wage continuation pay. Wage continuation pay is considered wages.

Wage Continuation Pay

In P-B-4, the Board considered the case of a claimant who was informed by his employer that he was to perform no services for the employer subsequent to June 8. However, the employer advised the claimant he would be kept on the payroll at full salary through July 15. In holding that this type of payment constituted wage continuation pay, the Board stated:

"It was not shown that the payments received by the claimant were the result of any plan or system or collective bargaining agreement, nor was there any showing that such payments were available to a class or group of employees. The payments in the present case were not made in a lump sum, usable immediately in their entirety like normal severance payments. They were paid in installments at the regular wage-payment times, as though the claimant's services had been continuing. The amounts were, therefore, clearly for the particular weeks for which similar wage payments would have been made on the same dates had the claimant remained in service."

From this decision, it is clear that where the employer has no policy or plan for allocating severance payments, and where payments continue to be made in the regular manner, even though the claimant is no longer performing service for the employer, these payments are to be considered as wage continuation payments.

In a California Court of Appeal case, Citroen Cars Corporation vs. CUIAB, (1980) wage continuation pay, as described in P-B-4, was distinguished from severance pay.

The employer stated that the purpose of the payments was not to supplement unemployment insurance but, in part, to avoid liability for benefits during the time the payments were made. The employer stated that as in P-B-4, the payments it made were not paid pursuant to any plan and not intended to supplement unemployment insurance.

The court, in holding that P-B-4 did not apply and that the payments were severance pay, stated:

"Such reliance is misconceived. First, that decision pertained to a situation involving one claimant; this case pertains to payments made to all employees of Citroen in Los Angeles, even though only two are claimants. Indeed, the Appeals Board itself distinguished between circumstances involving one claimant and those affecting a group or class of employees: 'It was not shown that the payments received by the claimant were the result of any plan or system or collective bargaining agreement, nor was there any showing that such payments were available to a class or group of employees. (P-B-4, supra.)' Second, nowhere in Unemployment Insurance Code Section 1265 or in the cases arising out of it does there appear any language defining when a plan shall have been established to come within its terms."

Refer also to TPU 460.35 for further discussion of the Citroen court case.

Wages - Accrual of Service Credits
Increasingly, employers are reporting payments to terminated employees which they refer to as "wage continuation", "salary continuation", or just plain "wages", etc. The payments are available to all employees who are terminated because of the reduction in force.

Many companies have established plans or policies which provide for making "wage continuation" payments or "salary continuation" payments to individuals who are terminated due to a reduction in force or closure. The companies generally make the payments at regular pay period intervals and so refer to the payments as "wage continuation" or "salary continuation" pay.

Although a company may refer to the payments as "wage continuation" or "salary continuation" pay, these payments do not constitute wage continuation pay since they are paid in accordance with a company plan or policy and since they are available to a class or group of employees.

The company, however, reports that during the period covered by the "wage continuation" pay the terminated employees are continuing to accrue all service credits just as if they were actively working. That is, they are earning additional vacation time; additional sick time, if the company allows accrual of sick time; seniority for vesting purposes; seniority for purposes of calculating a pension in the future, etc. Under these circumstances, the payments are considered to be wages as provided in Section 1252 of the Unemployment Insurance Code, since the employees continue to accrue all service credits just as if they were on the job and actively performing services for the employer. We do not attach any special label to the payments; we just refer to them as wages.

On occasion, a company will pay the amount due in a lump sum but will report it covers a specific number of weeks following an individual's last day of work and that the individual continues to accrue all service credits through the number of weeks covered by the payment. This lump sum payment constitutes wages since the individual accrues all service credits through the period covered by the payment. The field office would thus allocate wages immediately following the last day of work through the number of weeks represented by the lump sum payment.

If the company reports that the terminated individual continues to accrue seniority for the period the "wages" are paid but that the individual does not earn additional vacation time, for example, or that the individual continues to earn seniority and vacation time but does not continue to accrue sick leave, the payment is not wages.

For the payment to constitute wages, the terminated employee must continue to earn all service credits that he or she earned while working Prior to the termination. If the terminated employee does not continue to accrue all service credits, the payment would constitute severance pay.

The payments would meet the criteria of being designated as severance pay because the payments are made under the provisions of a company plan and the payments are available to a class or group of employees. See the discussion of Citroen in TPU 460.35.
In case anyone missed the relevant points, the issue is wages. If you are getting wages, you are not unemployed in CA. If you are not getting wages, you are unemployed in CA.
User avatar
Cut-Throat
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Does severance pay reduce or relace unemployment benefit

Post by Cut-Throat »

MnD wrote:My wife was laid off today and granted 7 weeks of severance pay at her current salary paid bi-weekly.
I went to the State unemployment claim web site and they indicated.....

Vacation, Severance, Pension or 401(k)
If you received vacation, severance, pension, 401(k), or some other form of payment from your employer, you may have to wait to be paid unemployment benefits.
You will receive a Notice of Decision if this happens.


That's pretty vague. Usually does severance pay have to run out before unemployment benefits can be received?
The one thing that is "vague" is the State that you Live in. If you tell us, that would make your questions a lot less "vague".
User avatar
LadyGeek
Site Admin
Posts: 95696
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Does severance pay reduce or relace unemployment benefit

Post by LadyGeek »

Following sscritic, I found that googling for the right term helps. "pa definition severance pay case law" lead to a blog with the right link: Regular Session 2011-2012 Senate Bill 1030 P.N. 1365 
"Severance pay" means one or more payments made by an employer to an employe on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments. The term does not include payments for pension, retirement or accrued leave or payments of supplemental unemployment benefits.
My inexperienced interpretation is that signing a release to not sue them is a legally bound contract, the definition applies. PA reduces unemployment benefits for pension, but not Social Security.

Additionally, I noticed that the law spells employee as "employe." Some google searching indicates it was an old way to save printing costs (less letters, less cost).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

LadyGeek wrote:Following sscritic, I found that googling for the right term helps.
Try googling this text:
Vacation, Severance, Pension or 401(k)
If you received vacation, severance, pension, 401(k), or some other form of payment from your employer, you may have to wait to be paid unemployment benefits.
You will receive a Notice of Decision if this happens.
Let me help MnD solve the mystery of where he lives.

https://www.google.com/search?client=sa ... s+happens.

Check out the first link. Voila! Mystery solved.

Well sort of. It would help if there were some confirmation. I previously asked if the mystery state was the one indicated by my search, but MnD was unwilling to respond.
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

Sorry - I don't stay glued to Bogleheads all day believe it or not.
It's Colorado.

Looks like Arizona has made it clear that severance pay delays UI benefits whether or not a release of claims contract is involved.
http://blogs.hrhero.com/hrnews/2014/07/ ... -benefits/

Wynn appealed, and an administrative law judge concluded that 50 of the 52 weeks of base pay he received was payment for the release of claims, meaning he was eligible for unemployment benefits when he initially applied in December 2011. The company appealed to the ADES Appeals Board, which held that the entire amount, all 52 weeks, was severance pay, making Wynn ineligible for benefits for a year.

Wynn then appealed to the Arizona Court of Appeals, and the court ruled in his favor on January 7, 2014. The court decided that only two weeks’ worth of payment to Wynn was severance, meaning he was disqualified from unemployment benefits for just the first two weeks after his layoff.

The court’s ruling prompted state Representative Karen Fann (R-Prescott) to introduce a bill to prevent such decisions in the future. The bill, signed by Governor Jan Brewer on April 24, 2014, defines severance pay to include “all amounts that an employer pays to an employee due to the employee’s resignation, termination, or participation in an exit incentive program or inclusion in a [RIF] or in consideration for the employee’s release of actual or potential claims for the termination of employment.”
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

But what happens in Arizona stays in Arizona. So let's all look for what Colorado law says, not NY, not NJ, not CA, not Arizona, but Colorado.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

So here is some Colorado law:
8-73-110. Other remuneration - definitions

(1) (a) An individual who is separated from employment and, because of the separation, receives additional remuneration not otherwise referred to in this section and the remuneration is not wages shall have his or her benefits postponed for a number of calendar weeks after separation from employment that is equal to the total amount of the additional remuneration, divided by the individual's usual weekly wage. The postponement required by this subsection (1) shall begin with the calendar week in which the payment was received. If the number of weeks does not equal a whole number, the remainder shall be disregarded. Notwithstanding section 8-73-107 (1) (f), any wages earned by an individual in a calendar week during postponement shall be disregarded.
I can't find any reference to non-compete and the like. Now if signing the waiver got you wages, then things would be different. So what are wages for unemployment?
(29) "Wages" has the meaning set forth in section 8-70-141.
(1) "Wages" means:

(a) All remuneration for personal services, including the cash value of all remuneration paid in any medium other than cash, other than remuneration paid in other than cash to an agricultural worker or a domestic worker. When an employing unit during a calendar year acquires the experience of an employer as provided in section 8-76-104 and if, immediately after such acquisition, the successor employer continues to employ an individual who immediately prior to the acquisition was an employee of the predecessor, any remuneration previously paid to the individual by the predecessor shall be considered as having been paid by the successor.
(b) ...
(IV) Any payment included in the definition of wages in the "Federal Unemployment Tax Act".
I don't think what was paid was for personal services. You might want to explore more of TITLE 8. LABOR AND INDUSTRY of Colorado Statutes.

P.S. You could have gotten this information long ago if you had mentioned Colorado in your first post. Most bogleheads know that when they want to learn about income taxes in their state, they don't go to the IRS. Answers to questions about a specific state are state specific. There are two reasons posters should mention their state in the OP: it gets better answers quicker, and it is the courteous thing to do for the people who want to help you.
User avatar
Flobes
Posts: 1771
Joined: Mon Feb 15, 2010 11:40 pm
Location: Home

Re: Does severance pay reduce or relace unemployment benefit

Post by Flobes »

I have personal history collecting unemployment in Colorado.

My very accommodative soon-to-be ex-employer and I were advised by Unemployment office that any severance would cause a delay in receiving unemployment benefits, for whatever period the severance covered. However, if I was compensated as part of a Separation Agreement where I signed a legal document, unemployment would start promptly. Either way, the amount I was eligible to collect was the same, for the same number of weeks, just the timetable was different. My soon-to-be ex-employer crafted a Separation Agreement, and I signed that I wouldn't say anything bad about him or share his secrets or sue him (and he made same promises to me.)

As I recall, there's a 1-2 week delay (depending in which day of the week you submit the online application) for benefits to actually start. Every two weeks, you file online for two weeks of continued benefits, by answering a few questions. Payment is via direct deposit to either a checking account or a VISA debit card.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

Interesting.

Perhaps the interpretation is that these are wages, but since they are all paid in one week, you will be unemployed the next week and every week thereafter. Was social security withheld from the payment?
User avatar
Flobes
Posts: 1771
Joined: Mon Feb 15, 2010 11:40 pm
Location: Home

Re: Does severance pay reduce or relace unemployment benefit

Post by Flobes »

sscritic wrote: Was social security withheld from the payment?
Yes.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

Flobes wrote:
sscritic wrote: Was social security withheld from the payment?
Yes.
Wages.
User avatar
Flobes
Posts: 1771
Joined: Mon Feb 15, 2010 11:40 pm
Location: Home

Re: Does severance pay reduce or relace unemployment benefit

Post by Flobes »

I received my "Payment for Signing a Separation Agreement" over a 10-week period, every two weeks. And received my Unemployment benefits at the same time.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

Only slightly off topic. A recent Supreme Court case on whether severance is subject to Social Security tax.
Mar 25, 2014
The U.S. Supreme Court decided in favor of the Obama administration in a dispute over taxes on severance compensation, overturning a lower court decision that could have forced the IRS to refund more than $1 billion.

The court said payments to laid-off workers are subject to Social Security and Medicare taxes under the Federal Insurance Contributions Act, or FICA. It was a victory for the Internal Revenue Service, which has been fighting more than 2,400 refund claims from companies and their ex-employees.
...
Writing for the court, Justice Anthony Kennedy said the payments were subject to tax. He rejected the company’s contention that what it called supplemental unemployment compensation was exempt from the FICA.
http://www.bloomberg.com/news/2014-03-2 ... es-1-.html

So my thought about FICA taxes was incorrect. Whether severance or not, FICA applies.
SimonJester
Posts: 2500
Joined: Tue Aug 16, 2011 12:39 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by SimonJester »

They will also delay UI payment for unused vacation time paid out.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

sscritic wrote: You could have gotten this information long ago if you had mentioned Colorado in your first post. Most bogleheads know that when they want to learn about income taxes in their state, they don't go to the IRS. Answers to questions about a specific state are state specific. There are two reasons posters should mention their state in the OP: it gets better answers quicker, and it is the courteous thing to do for the people who want to help you.
Throughout this thread you repeatably seem to be more interested in being condescending and critical than in providing any useful information - I've yet to see anything useful in any of your replies to this question but no shortage of hubris. Also note that demanding information multiple times interrogation style within a brief period in multiple posts is not going to garner that information if the OP (on a weekend) is away from their computer (imagine that). Since berating individuals about their post seems to be part of your MO along with responding with long cut and pastes, I don't generally pay attention to your posts, so that's probably why you didn't get the "quick action" you were demanding earlier.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Topic Author
MnD
Posts: 5194
Joined: Mon Jan 14, 2008 11:41 am

Re: Does severance pay reduce or relace unemployment benefit

Post by MnD »

Thank you Flobes! This is exactly the situation right down to the details you provided in your initial post that my spouse is in and the same payout form (bi-weekly for X weeks).
So given you (as does she) had a separation agreement waiving rights with compensation terms stated in the agreement, did you answer "no" to the unemployment office question, "did/will you you receive any severance pay?
Flobes wrote:I received my "Payment for Signing a Separation Agreement" over a 10-week period, every two weeks. And received my Unemployment benefits at the same time.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
sscritic
Posts: 21853
Joined: Thu Sep 06, 2007 8:36 am

Re: Does severance pay reduce or relace unemployment benefit

Post by sscritic »

MnD wrote:
sscritic wrote: You could have gotten this information long ago if you had mentioned Colorado in your first post. Most bogleheads know that when they want to learn about income taxes in their state, they don't go to the IRS. Answers to questions about a specific state are state specific. There are two reasons posters should mention their state in the OP: it gets better answers quicker, and it is the courteous thing to do for the people who want to help you.
Throughout this thread you repeatably seem to be more interested in being condescending and critical than in providing any useful information
If you think the law in your state is not useful, that's your opinion. I looked up the law in Colorado for you, but I couldn't do that for you until you told me you lived in Colorado. That shouldn't be that hard to understand.

Once you mentioned Colorado you started getting useful answers. That would have happened sooner if you had mentioned Colorado sooner. Don't you agree? Flobes told you about Colorado after you said you lived in Colorado. I would think you would see the connection.

Take that as condescension if you like. I take it as simple logic. People can't tell you about Colorado if they don't know you are asking about Colorado. I still think it would have been polite of you to mention it in your first post.

P.S. I told everyone you lived in Colorado before you did. I thought that was very helpful, as posters could then focus on the laws in your state and not the laws in other states.
User avatar
Flobes
Posts: 1771
Joined: Mon Feb 15, 2010 11:40 pm
Location: Home

Re: Does severance pay reduce or relace unemployment benefit

Post by Flobes »

MnD wrote:Thank you Flobes! This is exactly the situation right down to the details you provided in your initial post that my spouse is in and the same payout form (bi-weekly for X weeks).
So given you (as does she) had a separation agreement waiving rights with compensation terms stated in the agreement, did you answer "no" to the unemployment office question, "did/will you you receive any severance pay?
Flobes wrote:I received my "Payment for Signing a Separation Agreement" over a 10-week period, every two weeks. And received my Unemployment benefits at the same time.
Maybe. Quite frankly, I don't remember; it was years ago. I did as the counselor at Unemployment advised; I do remember she was very helpful and offered specific instructions.
Dandy
Posts: 6701
Joined: Sun Apr 25, 2010 7:42 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by Dandy »

I was forced out of two jobs - both had nice lump sum packages and one with 16 months of payments equal to my monthly salary. Both times I collected unemployment as soon as I applied. I think a lot has to do with how the company that lets you go characterizes the termination and state rules. The company can characterize the terminations as staff reductions, right sizing, layoffs, even early retirement publicly but how they characterize it to unemployment may be key.

I just showed the termination agreement to unemployment and they made the decision.
yosh99
Posts: 240
Joined: Thu Apr 19, 2012 8:44 pm

Re: Does severance pay reduce or relace unemployment benefit

Post by yosh99 »

Cut-Throat wrote:
MnD wrote:My wife was laid off today and granted 7 weeks of severance pay at her current salary paid bi-weekly.
I went to the State unemployment claim web site and they indicated.....

Vacation, Severance, Pension or 401(k)
If you received vacation, severance, pension, 401(k), or some other form of payment from your employer, you may have to wait to be paid unemployment benefits.
You will receive a Notice of Decision if this happens.


That's pretty vague. Usually does severance pay have to run out before unemployment benefits can be received?
Actually, I live in Minnesota and my wife was in the same position last year. She was laid off in Dec. She got severance pay (6 months) thru May of this year in one lump sum in January. She did not get unemployment until after the severance ran out in late May. She applied in January and they sent the 'ruling' at that time. She did not start collecting until 5 months later
I live in Minnesota as well and received a severance package. When the package ended 9 months later, I applied for unemployment and was told I was ineligible because I had not applied early enough from when I was severed.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Does severance pay reduce or relace unemployment benefit

Post by Peter Foley »

As is typical with unemployment insurance, the comments are all over the map. There are some general provisions that are the same in all states. Within the UI program these are referred to as conformity provisions. All states must have laws that conform to Federal law for that state to receive a reduction in the tax rate imposed on employers.

Severance pay is one area where states have broad options. As noted, in Minnesota (as in Colorado) severance pay delays the receipt of benefits. This is not true for all states. Note: In the states that delay the receipt of unemployment benefits, the law does not affect the total value of potential unemployment benefits, it limits the time period during which these benefits can be received.

In some cases, relatively few, it makes some sense to delay filing for UI benefits until after the severance has been received. Severance (in Minnesota) is applied back to the date of separation, not to the date the UI claim was established. It makes some sense to delay for a few weeks if the delay moves the date of the UI claim into the next calendar quarter. Potentially, more recent earnings could result in a higher weekly amount, or perhaps there was a law change that increased the weekly benefits amount for claims established after a certain date

There was one poster who seemed to suggest not reporting severance pay. Not a good idea. First, the employer is likely to report it when the claim is filed. Any discrepancy between what is reported by the individual and the employer could result in a delay of benefits. Even if the employer did not report the severance when the claim was filed, when the employer reported wages to the UI agency at then end of the quarter, the wages would be identified in a computerized crossmatch. Failure to report wages while receiving benefits is fraud and would likely result in the loss of benefits and financial penalties.

(I was the Director of the unit responsible for executing the crossmatch and investigating UI fraud for a number of years prior to retiring in 2012.)

sscritic: While there are some slight differences among states with regard to the definition of wages, when the reference is made that payments included in the definition of wages in the "Federal Unemployment Tax Act", the reference it to the effect that employers pay a UI tax on wages. There are, at times, "settlements" with regard to employment separations where the employer is not subject to UI tax on the settlement because no services were provided. The state law wording in these areas tends to be very precise so than the naming of a payment by the employer does not disadvantage the claimant. State agencies have to determine if the additional payment was a payout of vacation pay, on call pay, continuation pay, a profit sharing bonus for work performed during a specific time period etc.

Note that in the section quoted "the remuneration is not wages".

By the way - your research skills with respect to UI law are on par with your SS research. :happy
Post Reply