Unemployment Laws & Severance
When you lose your job, one of the foremost concerns is how much money you will having coming in to pay your essential bills. If you receive severance pay, your employer covers a few weeks of salary to help you transition to a new job. However, the laws in your state may bar you from receiving unemployment payments until the severance pay runs out. If they don't disqualify you from benefits, the laws will set strict regulations on how you can qualify for benefits and how much you can receive based on the amount of severance pay.
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What is Severance Pay?
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Severance pay is a monetary benefit that you receive from an employer upon separation to help you transition to a new job. Often, to qualify as separation pay, the employer must designate the money for a certain period. For example, he'll offer you three weeks of salary, designated to cover the three weeks following your job separation. Even though the you may receive the payment as a lump sum on your last paycheck, it's severance pay for those three weeks.
Disqualification Based on Severance Pay
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Some states' laws disqualify anyone from receiving unemployment benefits as long as they receive severance pay for the same amount of time. The reasoning is that you are already receiving salary payments for the weeks in question, and as an insurance program, unemployment compensation will not pay out in a way that allows you to profit. If you received your benefits, in addition to your regular salary, you'd be profiting from your loss of work.
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Adjustments Based on Severance Pay
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Some states do allow you to collect unemployment payments simultaneously with severance payments, but the laws specify that you do so within limits. In those cases, you can only collect unemployment benefits if your severance payment is less than your eligible unemployment benefit amount for that time. Since your benefits are usually about half of the average weekly salary you made during the previous two years and severance pay is usually the same as your salary, it's a rare occurrence that your severance is less than your eligible unemployment compensation. However, it may happen if you had several jobs during those previous two years that paid more than the job that paid you severance.
Partial Unemployment Benefits
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If your state allows you to collect unemployment benefits and severance simultaneously, your payments will be determined by the state law for unemployment income earnings allowance. This is the amount your state statutes determine that an unemployment claimant can earn each week before it begins to affect the benefits. Depending on the state, the income allowance can either be a percentage of your normal benefit payment or a flat number that applies to all claimants in that state. Everything you earn above and beyond the allowance will be deducted from your eligible benefit amount before paying it out.
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