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Severance Pay Offsets Under Pennsylvania’s Unemployment Compensation Law Now In Effect

March 19, 2012
By: Nancy Conrad and George C. Morrison

Act 6 of 2011, which was signed into law on June 17, 2011, is now in effect. Act 6 amends the Unemployment Compensation Law to include a severance pay offset against Unemployment Compensation Benefits.


Under the Law, a claimant’s benefits will now be offset by the amount of severance pay received that is in excess of “40% of the average annual wage as calculated under subsection (e) [of Section 404 of the UC Law] as of June 30 immediately preceding the calendar year in which the claimant’s benefit year begins.” The Law defines “severance pay” as “one or more payments made by an employer to an employee on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments. The term does not include payments for pension, retirement, accrued leave or payments of supplemental unemployment benefits.”

Currently, the “40% of the average annual wage” calculation equals $17,853. As a result, a claimant’s unemployment benefits will be offset by any severance payments he or she receives in excess of $17,853 (or 40% of the then average annual wage). Smaller severance payments will not trigger the offset provision.  Severance agreements reached prior to January 1, 2012 will not trigger the offset provision.


As we continue through 2012, employers and employees should be aware of these new severance pay offset rules and how a severance payment may impact unemployment compensation benefits.  Employers should carefully review and update their severance agreements to address these latest changes. 

Please contact Nancy Conrad (610.782.4909;, George Morrison (610.782.4911; or any member of our Employment Law Group for assistance with the review, development or revision of a separation agreement.

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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