Supplemental Unemployment Benefits and Employment Law

Supplemental Unemployment Benefits (also called a guaranteed annual income plan) may be offered by an employer to the unemployed. The supplemental unemployment benefits are used to help the unemployed maintain their current standard of living and are paid in addition to any unemployment benefits offered by the state.

How are Supplemental Unemployment Benefits funded?

Supplemental Unemployment Benefits are invested in a specific type of plan or trust which is tax exempt under Section 501 (c) (17). Contributions to the plan or trust can be made by the employer, employees, or both parties on a weekly basis. If a layoff or severance occurs the plan will pay unemployment benefits, which are equal to wages the employee would have earned prior to the layoff.

For instance, if a worker receives $400 in unemployment benefits from the state and they were previously earning $900 per week, the employer would fund the trust with $500 to make up the difference, allowing the worker to receive their full severance pay, which is equal to their previous wage.

Employers who use a SUB plan must file tax information with the IRS, must have a written documented plan, and can only use the plan if employees are laid off or have their hours limited due to an operational closing or a reduction in the work force.

When did the Supplemental Unemployment Benefits Plan start?

The SUB plan is not new. In fact, the SUB plan began in the late 1950s. Initially, Supplemental Unemployment Benefits Plans were encouraged by the metal and auto industries where layoffs were common and employees who were let go did not have access to enough unemployment compensation to support themselves or their families.

For many years supplemental unemployment benefits have also been a common tool used by unions when they are negotiating their collective bargaining agreements, but recently the SUB plans have been used by other companies as well.