Severance More than $19,000?
It is important to understand that, under the old Pennsylvania Unemployment law, there was not a “set off” for severance pay. Hence, if you entered into a severance agreement prior to January 1, 2012, the new law does not apply to you. Otherwise, it does.
As of 2015, the new Act has no effect at all on persons receiving less than $19,417 in severance pay. But, what happens if one is entitled to receive more than $19,417 in severance pay? As I currently understand it, if you are entitled to severance pay in excess of $19,417, there is an offset assigned to each weekly benefit to which you would otherwise be entitled. How is the offset calculated?
How Do I Calculate the Offset to My Unemployment Benefits in Pennsylvania Caused by My Severance Payments?
A claimant receives $32,000 in severance pay. Forty percent of Pennsylvania's average annual wage ($48,542.52 for 2015) is $19,417.00. Therefore, $19,417.00 is subtracted from $32,000 equaling $12,583, which is the amount of the claimant's severance pay that is deductible. The claimant was earning $1,200 a week at the time of his separation. Accordingly, the deductible amount of severance pay is allocated at $1,200 per week to the first 10 weeks the claimant is unemployed. Because $1,200 exceeds the maximum weekly UC benefit rate, the claimant would not receive any benefits for this 10-week period. The 11th week would be calculated by taking the remaining severance pay amount of $583.00 to determine eligibility.
Let's try and use some different figures to see if the rule can be more easily understood:
Example 1
* Employee receiving $19,416
* Subtract $19,417 from that figure = ($1) - no deduction in UC benefits.
Example 2
* Employee making $60,000 per year offered $25,00 in severance;
* Subtract $19,417 from $25,000 leaves $5,583 - this is the amount of the severance that is deductible;
* Employee paid $60,000 per year has weekly earnings of +/- $1,154
* Deductible severance is $1,154 for first 5 weeks of UC eligibility
* $1,154 multiplied by 5 = $5,570
* Employee would get full UC benefit during week 6, and thereafter
Example 3
* Employee making $90,000 per year offered $25,00 in severance;
* Subtract $19,417 from $25,000 leaves $5,583 - this is the amount of the severance that is deductible;
* Employee paid $90,000 per year has weekly earnings of +/- $1,731
* Deductible severance is $1,731 for first 3 weeks of UC eligibility
* $1,731 multiplied by 3 = $5,192
* At that point, employee will still have balance/offset of $391 (i.e. $5,583 - $5,192)
* Employee earning $90,000 per year eligible for state maximum weekly benefit of $573 per week;
* During week 4, employee eligible for UC payment of $182 (i.e. $573 - $391)
* Beginning week 5, employee gets full UC benefit payments
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| "I was told there would be no math." |
Pennsylvania’s amended Unemployment law defines “Severance Pay” as “one or more payments made by an employer to an employee on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments.”
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| You Say Potato... |
Severance pay does not include payments made pursuant to a company's pension/retirement plan/policy, nor does it include payment to an employee for his/her accrued but unused vacation/sick pay.
A common question certain to arise going forward is as follows: What is a severance payment?
HERE ARE
SOME OTHER LINKS YOU MAY FIND WORTHWHILE:
Severance and Pennsylvania Unemployment -
Doing the Math
Voluntary Severance Offers - How to Negotiate
and What to Look for When a Company Offers Severance
ARE PAYMENTS MADE IN ORDER TO SETTLE A WRONGFUL DISCHARGE OR DISCRIMINATION CLAIM SEVERANCE PAYMENTS? HOW DO PAYMENTS MADE BY A COMPANY TO SETTLE A POTENTIAL LEGAL ACTION BY THE EMPLOYEE AFFECT ONE'S RIGHT TO PENNSYLVANIA UNEMPLOYMENT COMPENSATION BENEFITS?
Suppose, though, you do not have a right to severance but, rather, are being offered a payment to settle a potential legal claim you have? Most companies, aware of the rules regarding severance in Pennsylvania, will attempt to characterize such payments as severance pay in order to minimize or eliminate the possibility of being charged for the employee's unemployment benefits..However, such payments are not severance under Pennsylvania law.
Pennsylvania’s Unemployment statute states as follows in this regard (emphasis added):
any person who has received or employer who has made a back wage payment pursuant to an award of a labor relations board arbitrator or the like without deduction for unemployment compensation benefits received during the period to which such wages are allocated shall notify the department immediately of the receipt or payment of such back wage award. The recipient of such back wage award, made without deduction for unemployment compensation benefits received during the period, shall be liable to pay into the Unemployment Compensation Fund an amount equal to the amount of such unemployment compensation benefits received.
Thus, one could easily argue that, unless the settlement amount was awarded by a tribunal of some sort (as opposed to via voluntary settlement), one’s entitlement to unemployment is in no way affected by a voluntary settlement.
Prior to the enactment of the new severance provision, it did not matter how such settlements were characterized (i.e. as severance versus simply as settlement proceeds). Now, it does. So, if you are involved in this type of post-employment negotiation, it may make sense to retain counsel to assist you in making sure that the Separation Agreement properly characterizes the payment to you as "settlement payments" not "severance payments."
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| Settlement Often Preferable to Alternative |
So, we can foresee employers attempting to characterize payments of settlement proceeds as severance, simply to get out from under any responsibility for unemployment compensation benefits.
Don’t let this happen to you! Make sure that the Separation Agreement that sets forth the resolution of your claim accurately spells out what the payment is for (settlement of a disputed claim).
In order to accomplish this end, it may be helpful to have an attorney review the Agreement in order to be sure that the language therein will not hamstring your rights to unemployment compensation in the future.
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