Supplemental Unemployment Benefits

What are Supplemental Unemployment Benefits (SUB)?

Supplemental unemployment benefits are taxed benefits intended to supplement state unemployment compensation for dismissed employees. Benefits of this nature are frequently included in collective bargaining agreements.

When unemployment results from training, illness or accident, a brief layoff, etc., SUBs generally come into play.

Are supplemental unemployment benefits the same as unemployment benefits?

Even though they are connected, they are not the same. When an employee is subject to a reduction in force or a furlough, the state offers unemployment compensation. The purpose of supplemental unemployment is to offer additional tax-free income and is linked to state benefits.

What is the purpose of a supplemental unemployment benefit plan?

The SUB's purpose is to increase the jobless person's pay to a level comparable to their prior employment. The SUB makes up the shortfall by giving workers a comparable weekly salary because state unemployment benefits aren't often a decent wage.

What is the difference between severance and SUB pay?

Severance may be granted in the form of a flat sum or a series of weekly payments. FICA and other taxes are due on this salary. Weekly supplemental pay, or SUB pay, is tax-free and less expensive for companies to adopt since they avoid paying those taxes.

Types Of Supplemental Unemployment Benefits

1. Extended layoff benefits: These are offered during temporary layoffs, such as a decrease in staff, as a cost-saving strategy.
2. Furlough benefits: These are payments granted as part of SUB when workers are required to work fewer hours owing to a decrease in force.

How Do Supplemental Unemployment Benefits Plans Work?

SUBs were well-known in the 1950s as a mechanism to provide workers in sectors with cyclical employment patterns with a more stable income. In collective bargaining agreements, SUBs were frequently fought for.

Across industries, they are once more becoming more popular. Employees who are laid off under a SUB plan preserve their old income while receiving additional unemployment benefits from their former employer in the case of a Reduction in Force (RIF) or temporary unemployment caused by training, sickness, or accident.

These plans may offer a "reemployment bonus" of a specific percentage of the remaining benefits to an employee who returns to the workforce. Additionally, SUB plans offer some financial assistance to employees who must work fewer hours as a result of a RIF.

SUB programs pay off over time rather than everything at once. Employees must be ineligible for state unemployment benefits to qualify (there are exceptions, so you may need to consult an employment attorney). This implies that depending on the state the individual works in, plans may vary (in terms of specifics and quality).

Benefits of SUB Plans for Employers

For employers, the biggest advantage is that they are spared the discomfort of a lump sum severance payout. This will be especially useful if your company has recently undergone a difficult downsizing and has little to no cash on hand. Another piece of good news for participating firms is that the IRS classifies SUB programs as benefits rather than wages, which lowers payroll tax obligations. The Federal Insurance Contributions Act (FICA) taxes, Federal Unemployment Tax Act (FUTA) expenses, and state unemployment taxes can all be avoided as a result.

How to apply for SUB?

Former employees must be qualified for state unemployment benefits and voluntary participants in their employer's SUB scheme in order to earn SUB compensation. Additionally, individuals must submit a claim to the state's unemployment insurance office where they previously worked (SUB rules may differ depending on the state you are in).

Conclusion

In economic downturns, force reductions are essential, but conventional severance packages are costly for your business's cash flow and are susceptible to payroll taxes. Supplement Unemployment Benefits Plans (SUBS), a tax-friendly choice, may spread out expenditures and provide the same value for the employee.