Like many Massachusetts white collar workers, I had the misfortune of being downsized a few years ago through no fault of my own. But there was a silver lining – I collected more money while unemployed than I did as a salaried worker. And it was all completely legal.
While new Governor Deval Patrick is looking for ways to close corporate tax loopholes and adjust massive corporate subsidies to help benefit the Commonwealth, he can also look for ways to adjust state spending in ways that will also benefit society. And one of those is in the way Massachusetts assists its unemployed residents. Now I’m not calling for an end to unemployment – I was very happy to get those checks and the state should be of assistance to people trying to find new jobs. But there are massive plugs in the system as people get paid who don’t need, or deserve, to get it.
First, take yours truly. When I was laid off, I got a decent severance package in exchange for signing a legal document not to sue my former employer. It’s a scam, but you gotta sign it if you want your severance. Well according to Massachusetts employment law, signing that qualifies you to full unemployment benefits while you're still getting your severance. So you can collect an unemployment check AND get your severance until it runs out. You’re getting more money for not working. Nobody is going to refuse free money, and I’m betting it’s mainly going into the pockets of skilled, white collar workers who can get a new job easily and do without the money fairly quickly.
Does your job depend on the weather? Roofers can legally collect unemployment during the winter and ski instructors can collect in the summer. If you own your own business or are self-employed in a tourist-driven location like Martha’s Vineyard, you can lay yourself off in the off-season and legally collect unemployment. The state’s Division of Unemployment Assistance calls people like this “frequent fliers” because they have legally collecting unemployment while employed for several decades.
Here’s another problem. How much you get in unemployment benefits is based on your salary before you got laid off (plus an additional stipend for every child). That means the white collar executive who makes $100,000 collects more than the blue collar guy who makes $35,000, even though the blue collar guy probably needs the money more. And I’ll bet the executive got a nice severance package as well and is more skilled to find a new job faster.
Moreover, unemployment taxes only apply to the first $14,000 of taxable wages, so the executive’s company (and his future company) is taxed proportionally less than the blue collar guy’s previous and future company. Unemployment insurance is one place where Massachusetts is still “Taxachusetts.” Massachusetts businesses pay $637 per employee in unemployment insurance, while the national average is $315. Since this is unfairly biased toward smaller businesses, these taxes – along with the rampant abuse and high unemployment benefits paid to workers who either don’t need or don’t deserve them – are a large part of what is causing the current exodus of middle class workers and the businesses that employ them from the state. And it’s also causing many businesses who can afford the high cost of unemployment insurance, such as Fidelity and Staples, to find new jobs outside Massachusetts as well.
I am not advocating ending unemployment checks. It is a necessary benefit for people who are between jobs. But if Governor Patrick is serious about easing the fiscal burden of doing business in Massachusetts with both the state and its businesses, he needs to get the Commonwealth’s eligibility requirements, benefits and tax burden to close the loopholes. This would best help people who need the money most and end the widespread abuse of the system.
More Info:
Mixed Benefits – A fantastic article on abuse in the unemployment industry by the former director of the Division of Unemployment Assistance. I got most of the figures from this story.
NFIB Call to Action – A small business trade group details how the current unemployment benefit system is strangling small businesses in Massachusetts.
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27 comments:
I lost my job yesterday, so actually looking at unemployment benefits and came across your page. From what I know, my (former) employer (like all other employers) pays to the state (in the form of some tax) for this benefit. So when the state pays me back, they are not doing a favor. It is more like, claiming for insurance money if something happens to your car, the insurance company is doing no favor since I have paid for that service. Am I way off the mark?
Apologies for the late reply, and I hope you have found a job by now! The insurance analogy is accurate, but remember that insurance is a form of risk management. With car insurance, you pay the premiums even though you hope nothing happens to your car. The insurance company hopes they don't have to pay a claim, but if they do they have calculated the risk accurately so they don't lose much.
Therefore if your employer lays people off, their unemployment insurance/taxes will rise because they're seen as a threat to lay more people off since they've already done so. They're seen as a bigger RISK by the state.
You know how skydivers have a second parachute which they hope they'll never use? Insurance (any kind) is that second parachute. Your employer pays it to the state so the state can cover you for a short time in case it needs to. And I'm sure you feel fortunate to have/had it, just like a second parachute.
For what it's worth , according to the state's page, "[i]n most circumstances, severance pay is considered income and you cannot collect UI benefits for the same weeks you are receiving severance pay."
Sherrie,
Thanks for the comment. Funny how I wrote this almost two years ago and it is becoming one of the most commented pages.
So while the laws may indeed have changed since I wrote this, I was told by the Mass. Dept. of Unemployment that if you sign something agreeing you won't sue the company, you can collect your severance and unemployment. That was about 2-3 years ago. If that is no longer the case, it's unfortunate for those who have been downsized but actually better for the Commonwealth of Mass. as a whole, as it was a glaring loophole that was costing the state too much.
Based on what David wrote almost two years ago still seems true. On the states web page from the previous posters link it states:
If the claimant was required to sign what is known as a "release of claims" as a condition of receiving severance pay, the severance pay would not be disqualifying.
Your blog keeps getting better and better! Your older articles are not as good as newer ones you have a lot more creativity and originality now keep it up!
Isn't a "Release of Claims" essentially waiving your right to file a claim for unemployment, thereby undermining your ability to get both severance and UI benefits at the same time? Note that a "Releases of Claims" is likely different than a "Covenant not to Sue" which is what most separation packages require. Or is that not true?
For the last question regarding release of claims -- I would check with a lawyer regarding these two as I do not know the difference. But I do not believe anything has changed since I wrote this. If you sign something that says you won't sue the company for wrongful termination, you are still eligible for unemployment benefits while the company pays you severance.
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the web sites are very confusing collecting severance and unemployment at same time. they all say u cant collect both however now im told that if u sign a release of claim form you can . i held off filing for unemloyment for 6 weeks because i thought my severance had to run out before i could collect unemployment. i tried to get claim predated but was denied.
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Even though you wrote this years ago, it helped me today. My job was moved to Missouri and I was subsequently laid off here in Massachusetts. I did receive a severance and release of claims package, which I had to agree to and sign (within 3 days of being laid off) in order to get the severance money. I thought for sure that I would have to wait for the severance to run out before I was eligible to collect unemployment benefits. Getting my ducks in a row I decided to get all of my paperwork in and filed early and came across your post. I am now sending a copy to the UI department (which they asked to proved I had to sign something in order to get the severance) and now it looks like I do qualify for both. I never would have guessed and with some other bad luck right on top, the extra $$ is going to save me in a big way. Thank you so much for taking the time to put something out there that is still so useful all these years later! J - Worcester, MA
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