A Supplemental Unemployment Benefits Plan (SUB) is an IRS-approved “alternative severance structure” used to maintain the pre-displacement income of employees impacted by a reduction in force while, generating 30-45% cost savings for the employer. A SUB Plan has three primary components:

  1. Integration with State Unemployment Compensation (UI). The displaced employee’s income is maintained, but now comes from two sources, the state and the employer, thus reducing the benefit cost for the employer;
  2. Duration Management. Because benefits are tied to UI benefits, benefit payments cease when employees return to work. A FICA-taxable bonus of some portion of the remaining benefit may be issued upon reemployment prior to the expiration of the benefit period. If employees do not obtain work prior to the expiration of benefits, the savings realized may be used to extend the benefit period;
  3. Elimination of Payroll Tax. Under a SUB Plan, payments are classified as benefits rather than as wages and are therefore not subject to payroll taxes for the employer or employee.

SUB-Pay Plans offer distinct advantages over traditional severance plans:

  1. SUB Plan payments are classified as benefits, not wages, and therefore are FICA non-taxable for both the employer and the employee.
  2. Payments are integrated with the receipt of state UI benefits.
  3. SUB Plan payments are designed to meet the primary need of the displaced employee – income protection. The terminated employee’s pre-displacement wage is maintained during the unemployment period or the benefit period, whichever is less.
  4. Plans can be administered and managed by TSI’s team of HR, legal and payroll experts, reducing the burden on client HR and payroll resources.
  5. Plans can be designed and implemented in as little as 30 days.

In addition to permanent reductions-in-force, SUB Plans offer a valuable solution to temporary furloughs and operational downtimes. During downtimes, a SUB Plan allows employees to maintain a secure, reliable income and remain ready and available to be called back to work while also generating impactful cost savings for the employer. For companies who face retention challenges because of operational fluctuations, a SUB Plan can be the key to retaining talent within a finite budget, achieving the ability to guarantee a steady, reliable workforce season after season.

Severance and Separation Benefit Plans are typically treated as confidential information, and thus it is predictable that people who have not worked for a company with a SUB Plan are unaware of its existence.

The SUB Plan structure was conceived and implemented in the 1950’s manufacturing environment for use with union workers. SUB Plan administration is easily accomplished in the union environment, however, it is far more difficult in a non-union workplace given the resources required to ensure compliance.  It was not until the early 2000’s, after third party benefits administration became popular, that SUB Plans began to spread more widely.

The design of a SUB Plan is highly flexible and can be structured to best accomplish your company’s goals, whether that is to maximize savings or provide greater benefit to the terminated employees.

TSI can work with your company to determine the approach that best suits your company’s unique culture and objectives.

Experience with clients in a broad range of industries since 2002 has provided TSI the capability to provide expert and efficient program design and implementation in all states.  TSI’s systems expertise and process disciplines ensure close monitoring of and adherence to relevant tax and unemployment regulations.

TSI relies on state-of-the-art systems and expert partners to support its programs. High-quality customer service and systems integrity are supported by the services of Plum Voice IVR, PowerServe International, Verizon Business, and Rackspace Hosting, providing TSI with the highest standard in the market for maximum uptime and business continuity. TSI’s systems are capable of processing over 10,000 participants simultaneously and have been designed for easy scalability.

TSI is one of the RVI Group companies. For over 20 years, RVI has provided financial, regulatory and accounting benefits to a roster of clients who are active worldwide in leasing, asset-based finance, and asset securitization. RVI is the world’s leading provider of residual value insurance.