Severance May Offset Unemployment in PA effective 1/1/12
Posted 01.02.12
Jonathan A. Segal

Act 6 of 2011 was signed into law on June 17, 2011 by then Governor Rendell. It amended the Pennsylvania Unemployment Compensation Law in a number of ways. Most significantly, for the first time in Pennsylvania, severance pay may serve as an offset against unemployment compensation benefits.

The offset is calculated by subtracting 40 percent of the “average annual wage” under the Unemployment Compensation Law from the total severance amount. Currently, this “40% of the average annual wage” calculation equals $17,853. This means that claimants can receive up to a gross amount of $17,853 in total severance pay before their unemployment compensation benefits are affected.The effective date of the Act’s severance pay provision is January 1, 2012. Severance agreements reached between an employer and employee in 2011 should not impact the employee’s unemployment compensation benefits, even if the severance pay continues into 2012. Act 6 states that its severance pay provisions apply to benefit years that begin on or after the effective date, but will not “apply to severance pay agreements that were agreed to by an employer and employee prior to the effective date.”

What does this mean for Pennsylvania employers?

  1. The cost of severance agreements may go up as plaintiffs’ lawyers filter into any settlement the offset. The Commonwealth’s gain may be at the employer’s expense.
  2. Do not state or suggest that severance will not affect unemployment. It may.
  3. Consider including in your severance agreement a statement to the effect that the denial or reduction in unemployment will have no effect on the general release. Many agreements address denial of unemployment but will need to be modified to address reductions in unemployment.


This blog should not be construed as legal advice, as pertaining to specific factual situation or as creating an attorney-client relationship.

About Jonathan A. Segal
Jonathan A. Segal is a partner at Duane Morris LLP in the Employment Group. He is also the managing principal of the Duane Morris Institute. The Duane Morris Institute provides training for human resource professionals, in-house counsel, and other leaders at client sites and by way of webinar on myriad employment, leadership labor, benefits and immigration topics. Jonathan has served intermittently as a consultant to the Federal Judicial Center in Washington, D.C. for more than 20 years, providing training on employment issues to federal judges around the country. Jonathan also has provided training on harassment on behalf of the EEOC as well as providing training on diversity to members of the United States intelligence agencies. Jonathan is also frequently a featured speaker at national, state and local human resource, business and legal conferences, including conferences sponsored by the Society for Human Resource Management and the Pennsylvania State Chamber of Business and Industry. Jonathan’s practice focuses on maximizing compliance and minimizing legal risk. Jonathan’s particular areas of emphasis include: equal employment opportunity in general and gender equality in particular: social media; wage and hour; performance management; talent acquisition; harassment prevention and correction; and non-competes and other ways to protect your business. You can find him on Twitter @Jonathan_HR_Law .