Unemployment benefits are monies you can collect if you lose your job through no fault of your own. Unemployment is a type of insurance companies are required to have to protect their employees from sudden loss of income. To collect unemployment, you must be unemployed and without any income. Many companies pay severance pay to employees when they lay them off and in some cases even if they are fired. This pay can affect your ability to collect unemployment.

Definition of Severance Pay

Severance pay is a payment from an employer to an employee when the employee leaves a job. Severance pay may be given to an employee as a benefit from the company or in the form of leave hours (monies accrued by an employee for not taking time off or foregoing vacation time).

Effect of Severance Pay on Unemployment Benefits

Severance pay is not considered by the Division of Labor as wages, therefore it cannot lower the weekly benefit amount an unemployed person is entitled to. It can, however, have an effect on when an unemployed worker can begin receiving benefits. Severance pay can reduce unemployment benefits payable in the weeks in which severance pay is distributed. If there is no scheduled payment plan, then reduction in unemployment benefits occurs only in the weeks severance pay is received.

Unemployment Benefit Reductions

If your severance pay for a particular week equals or exceeds 1 1/2 times your weekly benefit amount, you are entitled to no unemployment for that week. If your severance pay is less than 1 1/2 times your weekly benefit amount but greater than the weekly benefit amount, the amount of the severance pay is subtracted from 1 1/2 times your weekly benefit amount. If your severance pay is equal to your benefit amount, half the payment is deducted from your benefit amount.

Lump Sum Severance Pay

If you are paid a lump sum severance payment, you can make your application for unemployment benefits but you will not be able to receive any benefits until the severance pay you received is gone.