Some employers pay severance to employees who are laid off or fired. When these newly out-of-work employees file claims for unemployment, their state's law will determine how those severance payments are treated. In some states, severance pay may render an employee ineligible for benefits.
A severance package can affect the employee's eligibility for benefits. State law determines how these amounts are treated:
In states that reduce or deny benefits in weeks when the employee receives severance pay, it's important to know when the state considers the payment "received." If severance is paid out over time (for example, the employee continues to draw a paycheck for several months after being laid off), it's easy to determine how much pay the employee is receiving every week. But what about lump-sum payments?
Some states simply divide the payment into amounts equal to what the employee use to earn each week, then count that amount against the employee each week until the severance is used up. Some states use the employer's allocation to determine when benefits are paid.
To find out how your state treats severance payments, contact your state unemployment insurance agency. For links to each state's agency, see State Unemployment Agencies.