March 31, 2022 Less than a minute read

Closing the severance pay loophole to cut UI costs

A loophole in state law is allowing some Missourians to access unemployment benefits that double up on compensation they received from their employer upon termination.

The loophole relates to severance pay packages that help support terminated workers.

More and more employers are providing severance pay, with one recent study showing that 64% of employers now provide severance pay, up from 44% in 2019.

The growing prevalence of severance pay is causing the state to pursue a revision to unemployment laws.

Currently, Missouri law accounts for termination payments of vacation and holiday pay when determining a worker’s unemployment compensation — but severance payments are not considered.

This leads to some Missourians today being able to receive unemployment checks even while also being supported by a severance payment from a former employer.

Senate Bill 1114 would change this. The legislation would require the state’s unemployment system to consider severance payments the same way it already factors in vacation and holiday payments.

“This helps protect the unemployment trust fund,” said Sen. O’Laughlin, a Republican from Shelbina, during a hearing on the bill by the Senate Small Business and Industry Committee.

The change is supported by the Missouri Department of Labor and Industrial Relations.

“We just don’t think that folks should be getting severance at the same time as getting unemployment when they cannot do the same for holiday and vacation pay,” said Ben Terrell, legislative liaison for the state labor department.

Ensuring people are not simultaneously benefiting from severance pay and full unemployment benefits is important to keeping business costs under control. The state’s unemployment system is funded by employers.

The current severance pay loophole is leading to excess expenses that need to be eliminated to help cut costs and protect the unemployment system for the future.

Missouri Chamber General Counsel Carol Mitchell testified in support of the bill.

“We support this legislation because it helps preserve the unemployment compensation trust fund while a claimant is still receiving compensation from an employer,” she said.

For more information, contact Mitchell at or 573-634-3511.


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