A More Efficient Separation Benefit

May’s jobs report indicates employers are still not looking to hire. Dire news for an economy hoped to be on its way toward recovery. The May BLS paper also reports there are 4.6 unemployed workers for every job opening in the country. That’s a pretty radical number. And it means only about 25% of the unemployed persons in the country can even get jobs in the current market. Layoffs are reportedly slowing, but is this because the workforce been so trimmed that there are not many people left to lay off? With such a microscopic number of jobs available to the unemployed public, does the BLS think a slowing number of layoffs is a good measure?

In an excruciatingly slow job market such as ours today, a laid off worker faces several challenges. In addition to the simple lack of open jobs and the endless black hole of the internet job search, a laid off worker has financial challenges to anticipate. Those who are lucky get laid off with a generous severance package and job search support. The unlucky and sometimes more in need, however, are those laid off with scant or no separation benefits. Workers in lower job tiers whose only guaranteed income comes in the form of a few weeks of severance are forced to support themselves using these meager amounts during what is, on average, a long period of unemployment. While State Unemployment Benefits do typically last a considerable while longer than severance funds, State UI is hardly a replacement for a full weekly salary.

Consider a terminated employee given eight weeks of severance located in a state that does not allow this employee to collect severance and State Unemployment Benefits at the same time. This employee exhausts his eight weeks of severance and while he remains unemployed and continues to look for a job, he will apply for and collect State Unemployment, an amount usually equal to a bit more than half of his former weekly wage, for several more weeks until he becomes reemployed.

Consider another terminated employee in the same state, this employee terminated from a company who pays Separation Benefits through a SUB Plan rather than as severance wages. Because this company utilizes a SUB Plan and integrates State UI Benefits into its separation benefit, the company can save upwards of 25% of its benefit costs. As is often seen, this company may take advantage of these savings to initially offer the employee some additional weeks of benefit. While these additional weeks of might not be enough to carry this particular employee through the entire period of unemployment, it could be a full month’s worth of living expenses, mortgage, gasoline and car insurance. For those employees with less tenure or seniority whose benefits are typically smaller numbers of weeks than high-tenured employees, these extra weeks could become a lifeline.

The uncertainties related to unemployment in a job market where only 25% of job searchers can be successful are many. Paying a separation benefit using a SUB Plan vehicle lessens those uncertainties by providing a few more weeks of income, at the same or even reduced cost to the employer, as a shorter severance benefit. The staggering unemployment numbers leave it to the imagination to comprehend how a huge chunk of our population must be feeling without income. A more efficient SUB Plan can ease these uncertainties for those with lesser incomes and support the transition through the unemployment period with more weeks of benefit at no extra employer cost.