How Does Severance and Vacation Pay Affect Unemployment?

Copyright Yellow Dog Productions/The Image Bank/Getty Images

When you are laid-off from a job and receive severance pay, which is typically a lump sum payment given to some employees when they terminate employment, it can impact your unemployment benefits.

How Severance Pay Affects Unemployment

If you receive severance pay how it is handled depends on state law. Different states have different policies regarding severance.

For example, receiving severance pay does not impact your benefits in California.

You need to report the amount you receive, but it will not be deducted from your unemployment compensation. In New York, if you continue to receive the exact same benefits you received while working until you find a new job you would not be eligible for unemployment.

In Texas, severance will not stop receipt of unemployment benefits, but payments will be delayed until the payment's period of coverage has expired. Unemployed workers in Florida are not entitled to unemployment compensation for any week that the severance pay is equal to or greater than the weekly benefit. If severance is lower than unemployment, you would be paid the difference.

Even if severance is not deducted from unemployment benefits, you are required to report it when you file a claim.

Pay in Lieu of Notice

Similar to severance pay, pay in lieu of notice is wages paid to an employee who was laid off without notice when the employer was required to provide advance notification of a lay-off.

When you receive pay for unused vacation or flexible leave benefits upon leaving your job, it may impact your unemployment benefits. State regulations regarding how vacation pay will impact unemployment benefits vary. Check with the unemployment office for your state to get the definitive answer for your location.

How Vacation Pay Affects Unemployment

In some states, lump sum payments for vacation time awarded at termination will not decrease benefits. When employees receive ongoing payments for vacation during while they are unemployed, those payments will often reduce their unemployment checks.  However, some states allow all workers without a set date for resuming employment to obtain full benefits while receiving vacation pay.

When states do reduce benefits, some deduct the full amount from unemployment awards while others will reduce payments by a percentage of the vacation pay. Some states allow a certain amount of vacation pay or other income before reducing benefits dollar for dollar.

Laid-off employees with a set date to go back to work who use vacation pay during their period of unemployment will usually have their benefits reduced.

Check With Your Unemployment Office

Because laws vary from state to state it's important to check with your state unemployment office for how severance pay will be handled. You may find the information you need online, or you will be able to find a phone number to call for assistance.

Don't wait to apply for benefits even if you're not sure about your current eligibility.

It's important to get your claim in the system so you can receive the maximum benefits you are eligible for. Report your severance pay when you file the claim, and your unemployment compensation will be calculated for you.

Related Articles

Unemployment benefits, unemployment rates, compensation, unemployment offices, extended unemployment benefits and how to file for unemployment.

How to File an Unemployment Appeal
If your unemployment claim is denied by the state unemployment department or contested by your employer, you have the right to appeal the denial of your unemployment claim. Here's how to file an unemployment appeal.