Coordinating Unemployment Compensation With Severance Packages
When one applies for unemployment compensation, it is important to coordinate said application based on when one’s severance package expires and whether one is still within one’s base year, which is the length of time preceding an application for unemployment compensation. The base year and one’s income earned over that period of time determines the calculations of the amount of one’s unemployment compensation benefits (see 43 P.S. §753(a)). A credit week is a week within a base year where an employee (i.e.: a claimant for unemployment compensation benefits) has worked and earned above a specific threshold income (see 43 P.S. §753(g.1)). In order to be eligible for benefits, one must receive employment income for a minimum of eighteen (18) credit weeks within a base year (see 43 P.S. §804(c)).
43 P.S. § 804(d)(1)(iii) states the following: “[n]otwithstanding any other provisions of this section each eligible employe who is unemployed with respect to any week ending subsequent to July 1, 1980 shall be paid with respect to such week, compensation in an amount equal to his weekly benefit rate less the total of … the amount of severance pay that is attributed to the week.” In other words, when one applies for unemployment compensation benefits one must report the income received from a severance package and that income is deducted from the unemployment compensation benefits if they are collected simultaneously.
A severance package can be paid over time or in a lump sum. If it is paid over time, usually in consecutive payroll periods, each week one receives a severance payment, said payment is considered income for a credit week which goes toward the unemployment compensation claimant’s base year, and this should be considered and accounted for before a claim for unemployment compensation benefits is made. If the severance payment is received as a lump sum, the Court and the Department of Labor have tended to aggregate the severance on a pro-rata basis based on one’s typical earnings. By example, if someone earns $1,000 per week, a $10,000 severance payment would be considered a ten (10) week severance. (See: Ross v. Commonwealth of Pennsylvania, Unemployment Compensation Board of Review, 127 Pa.Cmwlth. 457 (1989)).
“Severance pay” is considered to be one or more payments made by a employer to an employee due to an employee’ separation from employment (without regard to whether the employer is contractually obligated to provide the pay). Severance specifically does not include payments from a pension, retirement package, or accrued leave and/or supplemental unemployment benefits. The law, pursuant to Section 43 P.S. §§ 804(e)(1)(2)(ii) and 804(d)(1) of the Unemployment Compensation law, lays out how severance packages are calculated and attributed for the purposes of benefits.
Based on the above, it would seem, in most cases, that the best time to apply for unemployment compensation benefits is after the expiration of one’s receipt of a severance package. As receipt of a severance package counts toward one’s base year, waiting until after the package is fully paid will not affect one’s eligibility for unemployment compensation benefits. Furthermore, waiting until after one’s severance is paid avoids having one’s benefits deducted by the value of the severance package. Instead, waiting until the severance package is fully paid before applying for benefits allows one to potentially receive the full severance package and a full complement of unemployment compensation benefits. On the other hand, one ought not wait too long after the severance package expires before applying for benefits. Regardless of the source or type of income one receives, one must always have at least eighteen (18) credit weeks within a base year to be eligible for benefits, and benefits always begin upon application for them not on one’s last day of work or receipt of the last severance payment.
Originally published in The Legal Intelligencer Blog on October 23, 2015 and can be found here.