SUB-Pay Plan FAQs

WHAT IS A SUPPLEMENTAL UNEMPLOYMENT BENEFITS (“SUB-PAY”) PLAN?

A SUB-Pay Plan is an employment transition benefit or an “alternative severance plan” designed to assist a former employee’s transition to new employment due to an involuntary reduction in force, job elimination, reorganization, or similar circumstance.

SUB-Pay is designed to supplement the receipt of state unemployment insurance (“UI”) benefits and is not subject to FICA or FUTA taxes when paid under a properly designed SUB-Pay Plan. However, SUB-Pay Plans must comply with state regulations, which may differ from IRS requirements, and some states are required to approve SUB-Pay Plans before use. If benefits are recognized as SUB-Pay at the state level, SUB-Pay is also exempt from SUTA taxes.

SUB-Pay Plans were originally designed to help former employees gain more money while they were unemployed and transitioning to new employment. Knowing that only state UI benefits were not adequate enough for their former employees, union employers and the Department of Labor were able to provide a payment that was a supplement to state UI benefits, taxed the same as state UI benefits, and considered non-disqualifying wages against the receipt of state UI benefits. The former employee could now collect both benefits at the same time.

What Advantages Do SUB-Pay Plans Offer?

SUB-Pay Plans offer distinct advantages over traditional severance plans:

  1. Payments are not subject to employer FICA or FUTA taxes, or employee FICA taxes, when paid under a properly designed SUB-Pay Plan.
  2. Payments are integrated with the receipt of state UI benefits.
  3. If benefits are recognized as SUB-Pay at the state level, SUB-Pay is also not subject to SUTA taxes.
  4. Plans can be administered and managed by a team of severance experts in a completely transparent manner for HR and plan administrators.
  5. Plans can be designed to fit your company’s unique needs, saves money for the business, and increases the value of the plan for each employee.
  6. Plans can be designed and implemented in as few as 30 days.

Is a SUB-Pay Plan right for my company?

Many considerations are involved in determining the effect a SUB-Pay Plan could have on your company. These include corporate culture, population sizes, states involved, pay amounts, etc.

Total Management Solutions can work with your company to determine the approach that best suits your company's objectives.

Are SUB-Pay Plans only for one time reductions-in-force?

Clients often consider a SUB-Pay Plan in advance of an upcoming reduction-in-force. Once established, most adopt a SUB-Pay Plan as part of their formal ongoing separation pay plan – saving money and increasing the benefits to their separated employees for years to come. Some of our cleints have had their SUB-Pay Plan in effect for as long as 30 years.

I have never heard about SUB-Pay Plans. Why?

SUB-Pay Plans were first introduced by organized labor and the Department of Labor in the early 1950's. For many years they were looked at as a “union only” way of handling reductions-in-force.

TMS was the first company to introduce the SUB-Pay Plan concept to “main stream” Corporate America over 30 years ago. Today the concept is gaining in popularity with TMS as the leader in the industry.

How long does it take to set-up a SUB-Pay Plan?

Total Management Solutions utilizes a structured methodology for guiding our clients in developing and implementing their SUB-Pay Plan, typically within 3-4 weeks, including identifying unique state filing requirements and monitoring state regulations and applicable laws to ensure that the SUB-Pay Plan not only meets the goals and objectives set forth by the client, but is compliant in the states and US territories where the plan must be active.

Who is TMS?

For 30 years TMS has successfully developed, implemented and administrated SUB-Pay Plans for Fortune 1000 companies. Every program is modeled to our client’s specific needs for their company and their former employees, and is supported by an expert management team, sophisticated technology and unparalleled customer service.

TMS utilizes a structured methodology for guiding its clients in developing and implementing their SUB-Pay Plan including identifying unique state filing requirements, and monitoring state regulations and applicable laws to ensure that the SUB-Pay Plan not only meets the goals and objectives set forth by the client, but is compliant in the states and US territories where the plan must be active.

TMS also provides a dedicated client services team for its clients with support services available to the separated employees who have any questions about their transition benefit plan. The dedicated client services team is staffed with experienced professionals who know first-hand what separated employees are experiencing during reductions-in-force. We help ensure that the separated employee population is cared for and treated with the utmost respect, understanding and compassion as they transition to new employment.