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.