The Effect of Severance Pay on Illinois Unemployment Benefits

Losing a job can be painful psychologically and even more devastating financially. When someone becomes unemployed he naturally tries to find new income. The two most ready sources are unemployment insurance benefits and severance pay. The state of Illinois allows the unemployed to get both, but only under certain conditions.

Illinois offers unemployment benefits only when a person loses a job through no fault of his own or has to work less than full time because no more work is available. He must be available to work and be actively looking for work. After a week of waiting, an unemployed resident can earn as much as $388 a week as an individual, $462 with a spouse and $531 with a child.

The state of Illinois defines severance pay as "(a)mounts paid or payable to an individual for past services rendered by the individual to an employer or amounts paid or payable to an individual for pension or seniority rights lost upon separation or layoff." The state does not guarantee severance pay for unemployed residents; such pay is arranged between employees or their union representatives and employers. Severance pay is provided to help a separated former employee pay the bills until he finds a new job. Sometimes an employer will require an employee to agree to certain terms, such as an agreement not to take legal action against the employer. Some organizations recommend that an employee get legal advice if he is not sure if the agreement is in his interests.

Unemployed Illinois residents are allowed to receive both unemployment insurance benefits and severance pay. This because the state regards severance pay as compensation for work done before an employee is separated. Unemployment benefits are available only after an employee is separated or required to work less than full time because no more work is available.

What employees and employers call severance pay may not be regarded as such by the state of Illinois. The Illinois Unemployment Insurance Law Handbook gives an example. An individual who was told he would be terminated on April 17 works on the employer's premises until April 6. Then he or she performs incidental services until April 17, training a replacement by phone. The individual and the employer may regard pay for work between April 6 and 17 as severance pay. However, the state does not, because the individual was employed. The worker cannot get unemployment benefits until after April 17.