Syracuse, N.Y. — A change in New York’s labor law bars many people from collecting unemployment benefits while they are receiving severance pay from their former employers.
The change was signed into law by Gov. Andrew Cuomo in March but did not take effect until Wednesday. It prohibits unemployment benefits for anyone receiving severance pay that exceeds the state’s maximum weekly unemployment benefit, which is currently $405.
Unlike some states, though, New York still allows terminated workers to receive a full 26 weeks of unemployment benefits after their severance pay has run out and they are still without a job, said Chris White, assistant director of communications at the state Department of Labor. This provides claimants with a critical safety net if they are unable to find a job during the weeks they are receiving severance payments, he said.
The new rules are part of a package of changes the state has made to its unemployment benefits program to cut costs and to more quickly pay back the $3.5 billion the state borrowed from the federal government during the height of the recession to keep its Unemployment Insurance Trust Fund solvent.
White said the changes were put in place to reduce the likelihood that the trust fund would again run out of money. He said they also ensure that benefit rates can be increased to keep up with the cost of living. Beginning Oct. 6 of this year, the maximum weekly unemployment benefit in New York will rise from $405 to $420.
The cost of the unemployment insurance program is paid by employers.
Most states have provisions that make a claimant ineligible or substantially reduce benefits when severance payments are provided by former employers, White said. The restrictions are based on the fact that employers who pay severance are also responsible for the charges associated with paying for unemployment benefits, he said.
White said the Labor Department has no estimate of how many people currently collecting unemployment benefits are also receiving severance payments.
The change even applies to people who receive a lump-sum payment from their former employers. Heather Youngman, an attorney with the Tully Rinckey law firm in Syracuse, said the state will deny unemployment benefits for a period of weeks for anyone who receives a lump-sum severance check. The period is determined by dividing the severance amount by maximum weekly unemployment benefit, she said.
The new rules about severance only apply to those who file for unemployment benefits after Jan. 1. They do not impact those who are already claiming benefits.
But the law has a loophole that could allow people to get around the change. White confirmed that people who receive their first severance check more than 30 days after termination of their employment can collect full unemployment benefits.
Youngman said people should keep that little detail in mind when negotiating their severance package with an employer.
“The penalty seems to be built in if the severance starts within 30 days,” she said. “If I were advising a client, I would negotiate a package that starts after 31 days.”