Severance and Unemployment Benefits

By: Robert Gore

Given the uneasy economic recovery, many employers are reluctant to hire additional staff and face tough decisions.  Some, forced to cut the cost of labor, but unwilling to completely abandon long term workers, offer severance packages to ease the transition into unemployment.  Those former employees are sometimes eligible to receive unemployment benefits from the State, alongside their severance.  New York allows this practice, due to economic hardship faced by the newly unemployed; however the practice of “double dipping” is highly regulated.  Unemployment Insurance: A Claimant Handbook, issued by the New York State Labor Department (NYSDOL) in January 2014,[1] considers the impact of severance packages on unemployment benefits.

The impact depends on the amount of severance received by the former employee.  Once that number is known, the key variable to determine is the weekly value of the severance package.  If severance is given in the form of a periodic disbursement, this calculation is simple: divide the dollar amount of the disbursement received in a single period by the number of weeks in that period.  For example, an employee receiving a monthly disbursement of $1,000 has a weekly disbursement value of $250.  The same standard applies to lump sum severance packages.  For example, if a former employee receives a lump sum of $50,000 for a period of 25 weeks,[2] their weekly value of their severance package is $2,000.

From here, the only question remaining is whether the weekly value of the former employee’s severance package is greater than the maximum weekly benefit rate.[3]  As of today’s date, the maximum weekly benefit equals $420.  Take care to check this number, as it is set to increase on an annual basis, until it reaches 50% of the average weekly wage in New York State.

If the weekly value of the former employee’s severance exceeds the maximum weekly benefit rate, he/she is not eligible to receive unemployment benefits.  The former employee may be eligible for benefits if the weekly value of their severance does not meet the maximum weekly benefit rate, or if, when their severance ends, they have enough earnings in a base period to establish a claim.

Outside the circumstances already discussed, only special circumstances qualify a former employee, who is receiving a severance, for unemployment benefits.  Notably, if the severance package does not begin paying the former employee for more than thirty (30) days after employment has ended, they almost certainly qualify for unemployment benefits in the interim.  This condition is covered in the Q&A’s posted by NYSDOL.[4]  The pertinent part of the Q&A post is included at the end of this memo.


[1]  Unemployment Insurance: A Claimant Handbook, NYSDOL, January 2014, http://labor.ny.gov/formsdocs/ui/TC318.3e.pdf

[2] Approximately 6 months

[3] Set by NYSDOL

[4] Before You Apply for Unemployment: Frequently Asked Questions, NYSDOL, http://www.labor.ny.gov/ui/claimantinfo/beforeyouapplyfaq.shtm#18 (last updated December 2013).

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