How to Make Severance Equitable

The 2012 election has, for a good number of reasons, many economic undertones. Tax cuts, welfare spending, healthcare, unemployment benefits...all are on the table. Should all people throughout the country have rights to all benefits and services, such as healthcare and ongoing unemployment support, due to the mere virtue of living in the United States? Some voters believe every person should be given unrestricted access to all benefits. Others say only the specifically qualified should have rights to certain of these. An unanswerable question, as dissatisfaction is inevitable under any solution.

What about a benefit, however, whose regulations governing its availability to people throughout the country vary drastically between states? When a person living in California is allowed to collect a benefit yet an identical person living one mile east in Nevada cannot? Or two identical people in New York and its neighboring Massachusetts? Such is the case with Unemployment Benefits.

Massachusetts and Nevada, as is the case in all states, allow persons involuntarily separated from their jobs to collect Unemployment Benefits. As is often the case in an involuntary termination, separated persons receive severance benefits of some sort. In Massachusetts and Nevada, a person may not collect State Unemployment Benefits at the same time as any company-paid severance benefits. Assuming a severance benefit is paid as a lump sum, in Massachusetts, a separated individual may not collect State Unemployment during the week in which this lump sum is paid. In Nevada, the individual may not collect State Unemployment for the entire period of time for which the severance benefit is designed to support the newly unemployed person. If an individual is given a lump-sum payment equal to eight weeks of pay, this means a Nevada resident may not collect unemployment for the first eight weeks of unemployment.

Take New York and California, however. Both of these states allow individuals to collect company-paid severance and State Unemployment Benefits at the same time. For an organization who has employees in multiple states, this creates an inequity when terminated people receive identical benefits yet are located in different states, and some may collect what often amounts to a few hundred more dollars each week than others.

One way to solve this problem is the institution of a Supplemental Unemployment Benefit (SUB) Plan, a plan designed to support unemployed persons during their period of unemployment. Under such a plan, severance benefits become FICA non-taxable, and covered individuals in all states are required to file for and be eligible for State Unemployment Benefits to be collected at the same time as company-paid separation benefits. An IRS-approved benefits structure, a SUB Plan allows employers to provide equitable access to benefits to all employees while saving significant amounts of money.

Prominent economists are again predicting a double-dip recession. If this does in fact occur, large organizations will be forced to perform even more layoffs and again spend money on severance. In ongoing layoffs, organizations often concern themselves with employee backlash in the face of a change to the severance package. However, those with employees is multiple states should begin to realize the imbalance that exists between states, allowing some former employees to essentially take home more money.