Severance Pay can reduce Ohio Unemployment Compensation Benefits

posted by Neil Klingshirn  |  Nov 1, 2009 3:56 PM [EST]  |  applies to Ohio

Severance pay in Ohio can reduce or eliminate an employee's unemployment compensation benefits for the weeks that the severance pay is received.  If an employer pays severance pay in a lump sum, the Ohio Department of Jobs and Family Services (ODJFS) can allocate the lump sum severance payment to the period of unemployment that it covers and reduce unemployment compensation benefits for those weeks.

Unemployment Compensation Eligibility and Benefit

ODJFS processes an unemployment compensation claim in two steps. First, it decides whether the claimant qualifies for benefits. To qualify, the claimant must have worked a certain number of weeks in covered employment and have lost his or her job for qualifying reasons, such as a layoff for lack of work or a reduction in force.  Ohio Administrative Code Section 4141-27-01 contains the specific qualification rules.

Second, ODJFS calculates the weekly benefit amount, which is based on a claimant's prior earnings and dependents. Each week ODJFS will reduce the amount of the benefit by a portion of the claimant's earnings from other employment for that week.

Severance Pay Can Reduce the Amount of the Weekly Unemployment Compensation Benefit

ODJFS treats severance pay as earnings for the weeks in which it is received and will reduce unemployment compensation benefits accordingly. Specifically, Ohio Revised Code Section 4141.31 states:

(A) Benefits otherwise payable for any week shall be reduced by the amount of remuneration or other payments a claimant receives with respect to such week as follows:

* * *

remuneration in the form of separation or termination pay paid to an employee at the time of the employee’s separation from employment;

* * *

If payments under this division are paid (in a lump sum) with respect to a month, then the amount of remuneration deemed to be received with respect to any week during such month shall be computed by multiplying such monthly amount by twelve and dividing the product by fifty-two. If there is no designation of the period with respect to which payments to an individual are made under this section then an amount equal to such individual’s normal weekly wage shall be attributed to and deemed paid with respect to the first and each succeeding week following the individual’s separation or termination from the employment of the employer making the payment until such amount so paid is exhausted.

ORC Section 4141.31. The corresponding Ohio Administrative Code section states:

Payments made to employees in return for their agreeing to a separation from employment shall be deducted from unemployment benefits otherwise payable to them as provided under section 4141.31 of the Revised Code. Such payments shall be deemed to be remuneration in the form of separation pay.

OAC 4141-30-01, Separation Pay.

The Ohio Dept. Jobs and Family Services Unemployment Compensation Guide for Employees covers this issue as well, stating that amounts received as "Severance Pay" and "Company Buy-Out Payments" will be deducted from an individual's weekly benefit.

Lump sum Severance Payments

Unless an employer allocates a lump sum severance payment to a period of time other than a benefit week, such as the employee's last day of work, then Ohio law allows ODJFS to treat it as received during the period covered by the severance pay. For example, if a severance agreement stated that the employee shall receive $X as a severance payment for Y weeks, then ODJFS can divide X by Y to calculate the amount it will allocate as income for each week. If the amount exceeds the unemployment compensation benefit amount, the unemployment compensation benefit can be reduced to $0.

If there is no designation of the period with respect to which payments are made, then ODJFS can attribute an amount equal to the claimant's normal weekly wage until the lump sum amount is used up.

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posted by Neil Klingshirn  |  Nov 1, 2009 3:56 PM [EST]  |  applies to Ohio

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