How Does Severance Pay Affect Your Unemployment in Tennessee?

The Tennessee Department of Labor and Workforce Development's Division of Employment Security administers the state's unemployment plan for eligible claimants. Eligible applicants who are unemployed through no fault of their own can receive benefits for 13 to 26 weeks under the standard state-federal unemployment plan during one benefit year of 52 weeks. The Tennessee Employment Security Law limits benefits to claimants who receive no other form of compensation while receiving unemployment benefits, including severance pay compensation.

As part of the Federal-State Unemployment Insurance Program developed by Congress during the Great Depression as part of the 1935 Social Security Act, the Department of Labor administers the federal-state program jointly with states. State laws govern the eligibility requirements to claim unemployment benefits. The Tennessee Employment Security Law requires employers to pay unemployment insurance taxes to fund the state program if their payrolls exceed $1,500 during any calendar quarter within one calendar year or when they have one or more employees working for at least 20 weeks during a calendar year. The state also requires successor employers to contribute to the plan if the original company was covered.

Types of Monetary Severance Payments

Tennessee law draws a distinction between monetary termination pay in-lieu of notice, defined severance pay or compensation as part of a different type of separation package. Under Tennessee law, an employee who receives a monetary compensation to voluntarily quit is not eligible for unemployment benefits unless the monetary compensation package exceeds the total amount of unemployment benefits he could have received if he was eligible. Severance pay based on past work does not disqualify applicants.

Tennessee law views severance pay as payment for past services, and employees who receive severance pay are eligible for unemployment benefits. However, payments for future services as an inducement for voluntary resignation are not viewed as severance pay, and applicants are disqualified when receiving inducement packages.

Severance Pay Impact

Severance pay does not affect an individual claimant's weekly benefit allowance. As long as the pay meets the definition of "severance pay," a claimant can receive his entire benefits allowance without a reduction for severance. Claimants do not have to report their severance payments as part of their weekly earnings while receiving unemployment benefits. The state will substantiate the payments as severance pay by contacting a claimant's former employer. As of 2011, the highest unemployment weekly benefit allowance a claimant can receive is $275, plus dependency benefits, if qualified.

Disqualification Rules

The Tennessee Employment Security Law limits unemployment benefits to workers who are unemployed for lack of work or who voluntarily terminated employment for good-cause. If disqualified, an applicant can reestablish a benefits claim if he earns more than 10 times his weekly benefit allowance after finding a new job and becoming unemployed for good-cause reasons. Disabled and sick employees who terminated employment for those reasons are not eligible to receive benefits unless they are able to work.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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