Amendments to Pennsylvania’s Unemployment Compensation Law

Posted on July 21, 2011

Amendments to Pennsylvania’s Unemployment Compensation Law Call for Limited Offsets for Severance Pay and Other Benefit Changes

Recent amendments to Pennsylvania’s Unemployment Compensation (UC) Law will bring changes to the way benefits are calculated and paid to future unemployment compensation claimants. Act 6 of 2011, which was signed into law on June 17, 2011, is being called a compromise, which allows Pennsylvania claimants increased access to federally funded extended unemployment benefits. However, the bill also calls for several changes to eligibility and benefit determinations under the state’s unemployment compensation system.

One significant change under the UC Law amendments is a new provision which will allow offsets against unemployment benefits for certain severance payments made to a claimant in connection with his or her separation from employment. Under the amended law, a claimant’s benefits will 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.” Current estimates put this number at $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 provisions. “Severance pay” is defined under the amended law 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.” The amendments with respect to severance pay offsets are set to take effect on January 1, 2012. Importantly, the offset provisions will not apply to severance agreements entered into at any time prior to that date, regardless of whether or not payments are still being made under the agreement after January 1st.

Other changes to the UC Law under the recent amendments include changes to how eligibility will be determined for future claimants. For example, in order to be eligible, claimants will need to satisfy new requirements to show that they are engaged in an “active search” for suitable employment. In addition, the amount of earnings needed to earn a “credit week” that qualifies employees for benefits is set to increase from the current $50/week to $100/week in 2013 and to 16 times the minimum wage in 2015. Beginning in 2015, claimants will not be eligible for any unemployment benefits if they have fewer than 18 credit weeks and the maximum number of weeks during which a claimant can receive regular UC benefits will be limited to the number of his or her total credit weeks. Finally, beginning in 2013, the amended law will change the minimum benefit from the current $35/week to $70/week. Claimants whose benefit calculations result in a finding that they are eligible for less than $70/week will not be entitled to benefits for those weeks.

Employers should be aware that the eligibility requirements under the UC law will be changing over the next several years as a result of the recent amendments. In addition, employers who currently use or who are considering using severance arrangements should consider the impact that the new offset provisions may have on such arrangements.

If you have any questions about the amendments to the Unemployment Compensation Law or would like more information about the effective use of severance agreements, please contact Julia Herzing or another Knox Labor & Employment attorney at (814) 459-2800.

Julia M. Herzing is an associate with the Labor & Employment Department at Knox McLaughlin Gornall & Sennett, P.C., in Erie, Pennsylvania. Labor & Employment Department Attorneys

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