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What Are Supplemental Unemployment Benefits? (Meaning, Eligibility + More)

What Are Supplemental Unemployment Benefits? (Meaning, Eligibility + More)

This refers to tax benefits that are paid to workers who lose their job through plant closing, training, reduction in force, illness, or temporary layoff. To qualify, you have to be eligible for state unemployment benefits.

During economic downturns, some companies are forced to let go of some of their workers. In the event of temporary unemployment or reduction in force, supplemental unemployment benefits (SUB) can help such employees. Read on to learn how this plan works, its benefits, and how one can be eligible.

How a Sub plan works

A Sub plan is a tax-friendlier alternative to severance packages. This was introduced in the 1950s to help employees in fields that have cyclical employment patterns have a steady income. These benefits are exempt from payroll taxes but are subject to state income taxes. Since SUBs were introduced, they have been gaining popularity across different fields. These plans were fueled by the metal and auto industries.

The tax benefits get paid to workers who are terminated due to things like sickness, injury, or training. During such situations, workers still maintain their previous wages with their former employers to encourage them not to look for alternative jobs and help them cater to their needs. Sub plans also provide income support for the workers who are forced to work for fewer hours during a reduction in force.

When the laid-off employees return to work, the plans can provide a reemployment bonus that comes in the form of a percentage of the remaining benefits. Note that a Sub plan does not provide for cases such as resignation or termination. 

Instead of the company paying the amount in a lump sum, a Sub plan is paid out gradually over time. Cash is usually low during a reduction in force, and things such as payroll taxes and severance pay can be expensive to an employer.

A Sub plan that allows the employer to pay the workers who have lost their jobs slowly reduces the impact that lump sum payments can have on the company’s cash flow and minimizes the payroll tax obligation. This plan is IR-approved.

Eligibility for supplemental unemployment benefits

Sub plans sometimes differ in quality and detail based on where one works and their state. To qualify, one must be eligible for state unemployment benefits. You must also be a willing participant in your employer’s sub-plan. 

Ensure you take the time to file a claim in the state you worked. The claim should be filed with the unemployment insurance office. Feel free to talk to an employment attorney to first find out whether you qualify for the Sub plan.

Find out how SUB plans are different from traditional severance

To get traditional severance pay, a former worker does not have to be eligible for state unemployment benefits. This is one of the things that makes traditional severance different from Sub Plans, which have this requirement.

Additionally, traditional severance pay can affect the amount of state unemployment benefits an employee receives. Sub plan payments are, therefore, better since they do not lower the unemployment benefits amount. While sub plan payments get administered in specific installments, traditional severance can make lump-sum payments.

We mentioned that supplemental unemployment benefits are exempt from payroll taxes such as social security tax and medicare tax. On the other hand, traditional severance is not exempt from such taxes. Employers can save up to 50% with supplemental unemployment benefits in comparison to using traditional severance.

The merits and demerits of supplemental unemployment benefits

They can help an employee still get an income when they are out of workTo receive these benefits, one has to prove that they are eligible for state unemployment benefits
Prevent the organization from lump sum paymentsIt is time-consuming
Leads to better management of cash flowCreating a sub plan requires an in-depth analysis of an organization’s financials..
Helps them employer save on costs 


Supplemental unemployment benefits have been receiving attention from both employers and employees over the years. They help workers meet their financial needs even when out of work and give employers a cost-effective way to help such employees. Making installment payments through a sub plan makes financial sense for the organization. Though SUB plans have a lot of benefits, you should understand that they are not easy to set up or even implement.


How long do supplemental unemployment benefits last?

Employees can continue receiving these benefits until they are rehired by the previous employer or find alternative work.

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