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Severance: Trending towards a balance

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An Alternative to the Costly Modern Severance Plan

Transition Services Inc. provides outsourced severance and salary continuation management services that maintain the income of displaced employees affected by temporary or permanent layoffs, while creating substantial savings for a company faced with the payment of these benefits. Our equitable and cost saving alternatives to traditional severance and salary continuation plans typically results in maintaining 100% of employee pre-displacement income while generating savings for the company of 25% – 45% compared to traditional downsizing costs.
By utilizing the IRS-approved, tax-exempt Supplemental Unemployment Benefits(SUB) Plan, we help our clients achieve a healthy balance between organization and employee needs during transitional times; including permanent layoffs and seasonal work stoppages.

Program Advantages
  • Income protection for displaced employees; displaced employees maintain 100% of their pre-displacement income.
  • Employer Savings; Organizations realize 25%-45% in savings by utilizing SUB-Pay compared to traditional severance.
  • Legal protection for downsizing employers; an employee release and waiver can be required under a SUB Plan, just as with severance, to mitigate potential employer liability.
  • Retention of quality talent; a SUB Plan can free up significant dollars for other key benefits to attract and retain talent.
  • Benefits paid over time; Under a SUB Plan, payments are not only tax exempt, but are paid over the duration of the benefit period, easing cash flow requirements.
  • Design Flexibility; TSI can customize your organization’s SUB Plan to fit the specific needs and value of your company

The TSI Program Components

Tax-Advantaged Structure :

Under a Supplemental Unemployment Benefits Plan, SUB pay integrated with State Unemployment benefits is characterized as a “benefit” rather than as “wages,” thus eliminating employment tax obligations.
A recent Supreme Court Ruling in United States v. Quality Stores, Inc. deemed that all traditional severance payments are subject to payroll taxes, that payments made under a Supplemental Unemployment Benefits osishe only way to pay separation benefits without paying employment taxes. This same tax benefit is provided to the employees who receive benefits under a SUB Plan, effectively increasing their income during their unemployment period (see example).