Supplemental unemployment benefits, or SUB, are tax benefits for people who got terminated or furloughed due to injury, illness, economic condition, or downsizing. These benefits help unemployed people have supplemental income in addition to state unemployment insurance benefits, and they aren’t held accountable for payroll taxes.
It can become costly for employers to pay out lump sums for every employee they lay off or temporarily dismiss. To avoid such consequences, whether due to downsizing or for other reasons, they opt for SUB plans as an alternative.
How do SUB Plans Work?
SUB plans help employers alleviate the financial toll on the organization while laying off or furloughing employees. This plan helps them distribute payments in installments over a period of time. Following are the ways in which SUB plans work.
1. Payroll Taxes
There are three types of payroll taxes employers need to take care of:
Since SUBs are classified as benefits, not wages or salaries, employers and employees aren’t held accountable for FICA, FUTA, and SUTA taxes. This way, the dismissed employee benefits through their unemployment and take-home pay, and the employer gets relieved of the benefits costs.
2. State Unemployment Insurance
An employee who lost their employment, whether by termination, illness or economic condition, will be eligible for income from two sources. For that to happen, they must have their state unemployment insurance or state UI.
Their income from the last job will be maintained from two sources: state UI benefits and employer-sponsored SUB pay. The latter amount depends on how much the unemployed person receives in their state UI benefits. In hindsight, this helps the employer by reducing the benefit costs they would have to pay otherwise.
3. Duration of Unemployment
The SUB plan basically acts as a substitute for the dismissed employee until their next employment. As the SUB pay is associated with the state UI the person receives, this pay will stop as soon as they obtain new employment.
A SUB pay has a specific period throughout which the unemployed individual will receive the benefits. The period of a person’s eligibility for this benefit varies from state to state.
Since SUB plans have a time frame, if the person gets employed within this period, they’ll receive a reemployment bonus, which is a certain percentage of the remaining unemployment benefits. This bonus received from the benefits allotment is taxable.
What are the Benefits of Having a SUB Plan?
SUB plans have benefits for both employers and employees. For the employers:
Saves from costs;
Saves from paying lump sums to all the dismissed employees; and
Saves employers time in reporting payroll taxes.
For the employees:
Payroll taxes aren’t withheld from their income; and
Receives the same amount of payment as their last employment.
How can You Apply for SUB Plans?
Employees who have been laid off or temporarily dismissed can apply for two main types of SUB: furlough benefits and layoff benefits.
Furlough benefits apply to employees who had to leave their job involuntarily or had their work hours reduced due to the economic crisis. In such cases, the employer will be taking care of the benefits as long as the situation lasts.
Layoff benefits apply to those people who were let go for reasons such as discontinuation of a company or a project or who met with some unfortunate physical or mental challenges. These people will receive benefits from their former employer and the state, which will make up for the wages they would’ve received if they were employed.
Are there any Cons?
Although SUB plans provide many advantages, they also have a few cons. One of them is that the entire process to confirm eligibility for SUB is tedious, from analyzing the company’s financials to the administration steps.
Employees being furloughed or terminated need to prove that they’re eligible for state unemployment benefits in order to apply for them. Besides, a detailed analysis of the company’s financials should be carried out to see whether the business will be able to compensate the dismissed employees in the following periods.