3 Proven Strategies to Improve Your Company’s Separation Plan
Change Your Offering to Former Employees from a Severance Benefit to a Transitional Benefit
Today, companies are seeking cost effective alternatives to traditional severance plans. They are finding that Supplemental Unemployment Benefit ("SUB-Pay") Plans provide the answers. First, a SUB-Pay Plan shifts the focus of severance from providing a severance entitlement benefit to providing a transitional benefit to assist separated employees during their search for new employment.
Utilize a SUB-Pay Plan to Reduce Company Expense and Increase Employee Benefits
Since they were introduced by organized labor and the Department of Labor in the early 1950's, SUB-Pay Plans have enabled companies to utilize its paid-in asset of state unemployment taxes to supplement state unemployment insurance benefits with separation pay. When combined, these two benefits can provide the downsized or furloughed employee with up to 100% of their pre-layoff wage with the company “supplementing” the rest. In addition SUB-Pay is not considered wages for FUTA or FICA purposes and may even be exempt from state unemployment insurance in certain states.
Because SUB-Pay is not classified as wages for FICA & FUTA taxes, your company retains 7.65% tax cost paid on traditional severance. SUB-Pay plans are also exempt from state unemployment insurance taxes. In addition, by supplementing state unemployment insurance benefits with SUB-Pay benefits, your company can further increase its separation savings by up to 45% or more.
Offer a More Equitable Separation Benefit than Traditional Severance
With traditional severance, some states allow separated employees the opportunity to experience a financial “windfall” by allowing them to collect both severance and UC benefits at the same time. Several states do require the separated employees to use their severance benefits before becoming eligible for state unemployment insurance benefits. SUB-Pay Plans allow a company to offer a more equitable, national scope separation benefit where each employee receives the same level of benefit.