What’s New

Severance: Trending towards a balance

Read More

History of Supplemental Unemployment Benefits

In its origin in the mid-1950s, the Supplemental Unemployment Benefits Plan (SUB Plan) was initially created as a way to provide a more meaningful benefit to individuals affected by reductions in force, as  state unemployment benefits were often inadequate to support displaced workers and their families during times of layoffs.

Unions, especially in the auto and metal industries where seasonal and cyclical layoffs are common, advocated for supplemental pay to lessen the disparity between their former wage and the state UI benefit. However, because many states disallow individuals from receiving state UI while collecting “wages,” the receipt of supplemental wages would thereby disqualify individuals from receiving the state benefit that the supplemental wages were meant to supplement in the first place.

To adjust for this, the IRS made a correction to the definition of “wages” so that it excluded SUB pay. SUB pay was reclassified as a “benefit” which can be collected in conjunction with State UI and by definition is payroll tax exempt for both the employee and employer.

For many years, the SUB Plan was used mainly in the union and collective bargaining environment. Due to the often complicated administration requirements, it is only in the last 20 years that employers within other industries have discovered its value through using 3rd party providers, like TSI, to setup and administer their plans. Today, SUB Plans are offered by all types of employers to any type of W2 employee.

The tax history of SUB Plans is well-established by several milestone events: