When an employee separates from employment in Connecticut, an employer sometimes offers that employee severance or other post-employment payments. One of the most common questions we hear is whether they can collect unemployment benefits while also receiving severance or other post-employment payments. The answer is: it depends.
Connecticut law includes an “offset” provision that can disqualify or limit an employee’s ability to receive unemployment benefits when that employee is receiving some post-separation payments from their employer. For years, many Connecticut employees who lost their jobs were able to receive both severance pay and unemployment benefits at the same time. As of January 1, 2024, that has changed. Now, Connecticut requires that the following post-employment payments be treated as a dollar-for-dollar offset against unemployment benefits:
- Severance pay;
- Separation payments;
- Dismissal pay;
- Wages in lieu of notice; and
- Other payments intended to compensate for lost wages.
This means that employees generally cannot receive unemployment compensation for the same period of time covered by severance payments.
Now, what does this look like in practice? This means that a severance payment can delay when a claimant receives unemployment compensation. Let’s say you receive severance pay equal to two weeks of your regular pay. You may be ineligible or limited in your ability to receive unemployment benefits during the two-week period following your separation date – even if you received that severance pay in a lump sum. The Connecticut Department of Labor determines a claimant’s weekly benefit rate, then allocates the severance/other remuneration over a period of weeks following separation. For each week in which the allocated amount meets or exceeds the weekly benefit rate, no unemployment benefits are paid. If the allocated amount is less than the weekly benefit rate, the claimant can receive a reduced benefit equal to the difference. The method of allocation (whether the payment is treated as covering a specific number of weeks or divided across a time period) can depend on the terms of the severance agreement and how the payment is characterized.
Not all payments are subject to offset. Generally, compensation for emotional distress or other non-wage damages is not treated as remuneration for unemployment purposes. Similarly, accrued but unused vacation or PTO that is paid out at separation is typically not allocated in a way that reduces benefits, although the specific treatment can depend on how and when the payment is made. Other non-wage payments (such as reimbursements or certain statutory damages) may also fall outside the offset framework.
You may be wondering, then: when should I apply for unemployment benefits? In most cases, employees should apply right away after separation – even if they are receiving severance. Why? Because the Connecticut Department of Labor will evaluate the claim, determine whether severance creates a temporary disqualification, and establish the timing of eligibility. Waiting too long to apply for benefits can create unnecessary delays or complications. Answer the questions you are asked by the Department of Labor truthfully, and be sure to report any earnings you receive in a given week; accurate reporting is critical.
Because the law involves complicated questions about how payments are structured, allocated, and characterized, employees should carefully review any proposed severance or settlement agreement and contact an employment lawyer before signing.