3 Severance Benefits Companies Need to Know About
Today’s challenging economic times call for bold strategies. Many corporate tax advisors are recommending Supplemental Unemployment Benefit ("SUB-Pay") Plans that can save companies 7.65%-45% in severance costs from payroll tax savings and the coordination of state unemployment insurance benefits. Furthermore, the benefits are paid on a periodic basis, reducing the cash flow impact to the company. What else do SUB-Pay plans do for companies? Here are the three key benefits:
Shifts the Focus of Transition Benefits to Reemployment
A SUB-Pay Plan shifts the focus of severance from providing a severance entitlement benefit to providing a transition benefit to assist separated employees during their search for new employment. By taking advantage of their paid-in asset of state unemployment taxes, the employer can supplement the receipt of state unemployment insurance benefits with SUB-Pay to provide a separated employee with up to 100% of their pre-layoff wage.
Provides a More Equitable Separation Benefit
With traditional severance, some states allow separated employees the opportunity to experience a financial “windfall” by allowing them to collect both severance and state unemployment insurance benefits at the same time. Several other states however require the separated employees to use their severance benefits before becoming eligible for state unemployment insurance benefits. SUB-Pay allows a company to offer a more equitable, national scope separation benefit to all of its employees.
Allows for Substantial Cost Savings
Because SUB-Pay is not classified as wages for FICA & FUTA, the employer also retains the 7.65% tax cost paid on traditional severance. SUB-Pay plans are also exempt from state unemployment insurance taxes. In addition, by supplementing their state unemployment insurance benefit with SUB-Pay, the employer can further increase its separation savings by up to 45%, or more while the employees still receives benefits that equal up to 100% of their pre-layoff wage.