Wages in lieu of notice are payments that a worker receives after dismissal. The employer pays an employee higher wages than normal because the employee is fired, instead of formally firing the employee. Wages in lieu of notice are a substitute for any additional wages the employer would pay the employee after the employee loses the job. An employer does not have to offer these benefits and they are usually only available if a collective bargaining agreement requires them.
An employer may stop calling in an employee for work, but still keep the employee on the payroll and issue the employee a regular pay check. This arrangement is considered wages in lieu of notice. The worker is unemployed because the company is not paying the worker to perform a job, although a state may still consider this income to be wage income.
The worker may still qualify for other benefits from the company while receiving wages in lieu of notice, even though the company has laid off the worker. In the state of California, a worker may also receive paid vacation time or gain work days that qualify the worker for seniority benefits while receiving wages in lieu of notice.
Wages in lieu of notice can reduce state unemployment benefits. The state of California considers wages in lieu of notice to be wage income, and separates these payments from dismissal pay or severance pay, which the state does not consider to be wage income. Wage income reduces unemployment compensation, but other types of payments from an employer may not affect state unemployment benefits.
Other factors determine whether a state considers a paycheck to be wages in lieu of notice or severance pay. In the state of Washington, severance pay does not apply to a specific time period; the employee does not have to be available to perform work for the employer; and the worker will still receive severance pay even if she finds a new job.
An employer can also pay wages in lieu of notice to meet the requirements of the federal WARN act. WARN, or the Worker Adjustment and Training Notification Act, states that an employer must give workers 60 days' notice before a mass layoff. If the employer decides to shut down operations in a shorter time frame, the employer can pay wages in lieu of notice to avoid violating federal law.