If you've been laid off and received a severance package—money and perhaps additional benefits intended to bridge the gap until you find a new job—your right to unemployment benefits might be affected.
Read on to learn how severance impacts unemployment eligibility.
State law determines whether severance payments (sometimes called termination payments or dismissal payments) are treated as wages. If they count as wages, then they would affect your right to collect unemployment. As long as you are receiving wages, you aren't considered to be unemployed.
Many states allow employees to make a relatively small amount and still collect unemployment, but a former employee who is still collecting the same amount he or she used to earn would be well over that limit.
Let's look at the state of California as an example. Under California law, severance pay is not considered wages for unemployment purposes. Instead, it is considered a payment in recognition of your past service. Even if it is paid out in installments, it doesn't affect your ability to receive unemployment benefits.
To count as severance pay under California law, your severance must be paid out pursuant to an employer policy or plan. And, it must be available to a class or group of employees.
Different rules apply where your employer pays you in lieu of notice. For example, let's say you had an employment contract requiring your employer to give two weeks' notice before firing you or laying you off.
If your employer decides to lay you off, it might just give you two weeks' pay rather than giving you notice and requiring you to work for two more weeks. Because this money is considered to be wages, you would be prevented from collecting unemployment while you were receiving it. Essentially, you are still considered to be employed during the notice period, even though you are not actually showing up to work.
Of course, even if your state allows you to collect unemployment if you've accepted a severance package, you still must meet the other requirements for unemployment benefits. These generally include:
If you've been denied unemployment benefits, or you have legal claims against your employer such as for wrongful termination or retaliation, you should seek legal advice from an experienced employment attorney.