Supplemental Unemployment Benefits (SUB) are employer-funded payments made to laid-off or furloughed employees in addition to the standard unemployment insurance (UI) benefits they receive from the government. Unlike severance pay, SUB plans are structured to coordinate with state UI benefits and are designed to "top up" the amount the employee receives, usually without reducing their eligibility for state UI.
These plans are often used in industries with cyclical layoffs, such as manufacturing, to provide temporary financial support and maintain employee loyalty during downturns.
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Key Facts
- Employer-Funded: SUB plans are entirely funded by the employer, not deducted from employee wages.
- UI Coordination: Payments are integrated with state unemployment insurance, ensuring employees get more without disqualifying their UI.
- IRS-Compliant Structure: Must meet IRS criteria to avoid being taxed as regular wages and to preserve the employee’s UI eligibility.
- Non-Wage Payments: SUB payments are not considered "wages" if structured properly, meaning they don’t affect other benefit calculations.
- Used During Layoffs: Common in unionized or seasonal industries to soften the financial blow of temporary layoffs or furloughs.
1. How do Supplemental Unemployment Benefits differ from severance pay?
Severance is a lump sum or scheduled payment regardless of UI, while SUB is tied directly to UI eligibility and may be paid only when UI is collected.
2. Do SUB payments impact unemployment insurance eligibility?
No, if structured correctly according to IRS and state guidelines, SUB payments will not disqualify or reduce UI benefits.
3. Are SUB plan payments taxed?
Yes, they are taxable as income, but if the plan meets IRS requirements, they’re not considered “wages” for FICA or FUTA taxes.
4. What must be included in a compliant SUB plan?
Clear eligibility requirements, integration with UI, non-discretionary payment structure, and no substitution for wages or services.
5. Why do employers offer SUB plans?
To support employees financially during layoffs, preserve morale, and maintain a skilled workforce for rehiring when conditions improve.
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