- Severance packages vary depending on the terms of separation. For example, some employers may offer a severance package that provides money based on the employee’s years of service. Other packages may be a continuation of salary. The payment terms may also be different. Employers could offer the employee a lump-sum payment or periodic distributions. The difference may affect unemployment benefits.
- State laws vary on how to treat severance pay for purposes of unemployment benefits. In New Jersey, for example, the distinction is whether the severance pay “extends employment.” Packages that are a continuation of salary extend unemployment and may disqualify you from unemployment benefits under New Jersey law. In Massachusetts, most severance pay is considered income, and the applicant is barred from unemployment benefits until the severance pay stops.
- If you lose your job and accept a severance package, you should still apply for unemployment benefits. Your state may or may not accept your claim, depending on the type of package. In Michigan, for example, severance pay factors into determining unemployment, and the package may reduce the benefit award during the weeks the worker receives benefits.
- Unemployment benefits do not replace your wages, but they are still useful to help cover finances during your job search. Losing your benefits or failing to apply for benefits when you would have been otherwise eligible for them can be financially harmful. Because of the factual and legal matters involved in determining the effect your severance pay has on potential unemployment benefits, you should consult with a legal professional before making a decision.
Severance Packages
Affect on Unemployment
Applying for Benefits
Other Issues
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