Severance pay is a form of employer-funded compensation for an employee leaving a job. This type of compensation -- usually a lump sum or made in several payments -- is usually the hallmark of an executive or high-ranking position within a company. Accepting severance pay in Pennsylvania may or may not have an impact on a terminated employee's eligibility for unemployment compensation, depending when the two parties reach an agreement for severance.
State Unemployment Regulations
At time of publication, severance pay in Pennsylvania does not affect a worker's eligibility for unemployment benefits. According to the Pennsylvania Labor and Employment Blog, a terminated worker receiving a severance package up until January 1, 2012, retains full eligibility for unemployment as long as the employee meets all other eligibility requirements. The employee must have lost her position through no fault of her own and have worked for a minimum of 16 weeks earning at least $50 each week to be minimally eligible for unemployment benefits in Pennsylvania.
New Severance Package Rules
An amendment to the Pennsylvania Unemployment Compensation Law, signed into law on June 17, 2011, ushers in changes to severance pay rules for unemployment compensation. All applicants receiving payments from a severance package after January 1, 2012, could have benefit eligibility reduced depending on the size of severance payments. According to the Pennsylvania Labor and Employment Blog, the offset amount for unemployment benefits is equal to 40 percent of the applicant's average annual wage as determined by the Pennsylvania Department of Labor and Industry. Any severance payments over this 40-percent mark will lower an applicant's eligibility for benefits after the effective date.
Previous Severance Agreements
An applicant for unemployment benefits reaching an agreement for severance payment prior to the January 1, 2012, date will not have unemployment benefits reduced per the state's amendment to the Unemployment Compensation Law. This means even if a terminated employee agrees to a severance package a day before the law takes effect, he may still enjoy full severance payments and receive payments from unemployment compensation at full eligibility, regardless of the amount of money he's receiving in severance pay from his previous employer.
Other Forms of Payment
Pennsylvania does not consider all types of pay from a previous employer as severance pay for determining unemployment compensation eligibility. Severance pay does not include payments from a retirement plan, pension plan, accrued sick leave or vacation pay or supplemental unemployment benefits. A terminated employee receiving payments from any of these sources may not experience a drop in eligibility for unemployment benefits. It's a smart idea to list these payments on an application for benefits just to avoid accusations of hiding income from the state.