Advocating For Your
Workplace Rights
And Interests

How are unemployment benefits affected by severance pay?

On Behalf of | Dec 3, 2015 | Employment Contracts |

Workers who have faced termination from their jobs in Michigan need to have a firm understanding of all the legal issues that surround severance pay. If a former employee received a severance package upon termination, this can have an effect on the unemployment benefits he or she is entitled to. The law states that severance and other payments that an employer made after an employee was dismissed will lower the amount the former worker will receive in unemployment benefits. An exception is the Supplemental Unemployment Benefits.

Under the law, the employer has the right to allocate the severance payments to a week or weeks. This is independent of when the severance payment was made. The contract or collective bargaining agreement can specify the period in which this will be paid. Without a contract or CBA, the employer has the right to designate the period for when the severance will be allocated. Workers do not need to be told of how this will influence benefits. Unemployment benefits will be lowered for the time the severance pay is allocated. Without a contract detailing the allocation procedures, the reduction of unemployment benefits will only happen in the week when the severance pay was made.

If the severance is paid in the form of a lump sum and the allocation is for weeks or several weeks, the former employee’s unemployment benefits for that week or weeks will be reduced in a commensurate manner. It is contingent on how much of the severance was allocated for the particular week. If it is not allocated for a week or weeks, then the unemployment benefits will be reduced for only the week in which the severance payment is made.

Losing one’s job is difficult and it can be made more difficult if there is confusion or an attempt on the part of the former employer to change the way the contract stipulates severance should be paid. Those who are unsure of how their contract deals with severance when it comes to unemployment benefits or are in need of assistance with any matter related to termination should speak to a legal professional experienced in severance and unemployment compensation.

Source:, “The Effect of Severance Pay on Unemployment Benefits,”


FindLaw Network