Since a 2014 reform to New York State’s Unemployment Insurance System, employees are generally not eligible to receive both severance pay and unemployment insurance at the same time. However, there are exceptions and nuances to this rule. As a result, employers sometimes have options that can affect their former employees’ receipt of New York unemployment benefits.

[You might also want to review this article on “Contesting New York Unemployment Claims”.]

New York Unemployment Benefits

In New York, employees must be completely unemployed and actively seeking work to be eligible for unemployment benefits. Most unemployed individuals with sufficient work history will be eligible for benefits. Employees who resigned or engaged in misconduct might not receive benefits.

Until several years ago, severance pay did not change employees’ New York unemployment benefits. Now, however, it often will.

What is Severance Pay?

New York’s unemployment insurance law defines severance pay as “payments made by an employer to an employee due to separation from employment.” Severance pay generally does not include payments regarding retirement, health insurance, accrued leave, or unemployment benefits.

The law recognizes that severance pay can be paid in several payments or one lump sum. And now the timing of the payment(s) matters for unemployment purposes.

Why Timing Matters

Whether severance pay affects unemployment benefits can depend on when the employer makes the payments.

If an employee receives severance pay within 30 days of his or her last day of employment, the severance may offset the unemployment benefits. In that scenario, the employee will not receive unemployment if the weekly severance payments (or pro rata portion of a lump-sum payment) are higher than the maximum weekly unemployment benefit rate. Once the severance payments have ended, the employee may be eligible to receive unemployment benefits (assuming they meet standard eligibility requirements).

On the other hand, if the employee does not begin receiving severance pay until more than 30 days have passed since their last day of employment, they can immediately collect unemployment. In this situation, the severance pay will not affect New York unemployment benefits at all.

(The “last day of employment” is the last day an employee was actually working or was on paid leave.)

Keep This in Mind

Eligibility to receive New York unemployment benefits is often an important issue for departing employees. Employers should carefully consider unemployment issues in developing severance packages.

When employers have options in structuring the severance payout, they should factor in the impact on unemployment benefits. The decisions involved can have meaningful financial implications for both the employer’s business and the former employee. The “right” choice will likely vary in different situations.