Can I apply for unemployment benefits if I have a severance package?

Although this article is about New Jersey unemployment rules, these issues are fairly consistent from state to state.

NJ.com

Posted May 22, 9:29 AM
By Karin Price Mueller
NJ Advance Media

About 1.1 million New Jerseyans have applied for unemployment benefits since the coronavirus outbreak shut down the state.

Workers have been laid off, furloughed and their hours have been cut.

Some have lost their jobs permanently.

The lucky ones have been offered some kind of severance package.

So if you’ve lost your job for good because of the virus but you have a severance package, are you eligible for unemployment benefits?

It depends, and it’s very specific.

The Labor Department’s website says there are several kinds of payments workers may receive from a former employer, and these are treated differently.

It says “severance pay,” if paid within the context of contractual obligation or by custom, is a taxable fringe benefit under Administrative Code 12:16-4.3.

“It is subject to state unemployment, temporary disability, workforce development and family leave insurance contributions,” it said. “However, severance pay is not considered wages earned when calculating unemployment benefits for claimants.”


But if you’re receiving “continuation pay,” you will be out of luck. This kind of payment is also known as sick leave pay.

“Continuation pay is considered wages and is taxable under Administrative Code 12:16-4.2,” the website said. “It is subject to state unemployment, temporary disability, workforce development and family leave insurance contributions. Continuation pay is considered wages earned when calculating temporary disability benefits for claimants.”

Then you have “salary continuation through date of termination.” This is defined as “payments made by the employer that represent wage or salary payments through the date of termination during which time the employee is not required to perform any services.”

It said these payments are based on either a contract or other agreement.

“It is considered an extension of employment through the date of termination of the contract or agreement and should be reported as regular base weeks and wages,” Labor said. “An individual is ineligible for unemployment benefits for any week in which he/she is receiving salary continuation through date of termination.”

Labor notes one other kind of payment that could affect your eligibility for unemployment benefits.

It’s called “remuneration in lieu of notice,” which is a payment obligated by legal requirement, contract or custom to take the place of advance notice of separation.

“It is considered an extension of employment and should be reported as regular base weeks and wages,” Labor said. “An individual is disqualified for unemployment benefits for any week in which he/she receives remuneration in lieu of notice.”

But if you receive remuneration in lieu of notice for a period of less than a calendar week, you may be eligible for partial unemployment benefits for that week, it said.