Q: Do Severance Payments Preclude New Jersey Unemployment Benefits?


A: It depends upon the circumstances. As long as severance is paid in a lump sum, is intended to recognize past years of service, or does not otherwise extend a person's employment, it should not affect eligibility for NJ unemployment. Severance is not income in lieu of notice (example, employer was contractually required to give 60 days prior notice of termination, but instead, terminated the employee without prior notice and paid the employee a sum equal to wages for the notice period).  A person receiving income in lieu of notice is not usually eligible for unemployment benefits for those weeks because the payments are considered continuation pay or an extension of a person's employment.  Similarly, if a person is terminated and the company pays severance in installments through the company's payroll, that is considered an extension of employment. Unemployment benefits will not be paid until after the severance pay runs out. For this reason, it would be best to ask for severance to be paid in a lump sum, at least from the employee perspective. 

Q:  Do Severance Payments Preclude New York Unemployment Benefits? 


A:   It depends. Under NY law, an individual is disqualified from receiving unemployment insurance benefits during any week in which severance pay exceeds the maximum weekly unemployment benefit rate.  Ineligibility for unemployment insurance benefits will continue for each week in which the weekly severance payment exceeds the maximum weekly unemployment benefit rate.  If the employer structures the severance payment as a lump sum, the NY Department of Labor will apply a formula (using the former employee’s prior actual or average weekly pay) to determine the number of weeks of  ineligibility for unemployment insurance benefits.  There is one important caveat – the disqualification does not apply when the initial (or lump sum) severance payment is made more than 30 days after the last day of employment.  In that event, the former employee can collect unemployment benefits immediately.


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