North Carolina Governor Cooper has ordered that payments made by employers to workers temporarily unemployed due to COVID-19 not reduce or delay the unemployment insurance (UI) benefits that an otherwise-eligible individual would be entitled to receive. The governor's order refers to these payment as "COVID-19 Support Payments." (Emergency Order #134, April 20, 2020.)

In many states, severance payments (also referred to as dismissal pay) made to laid off or terminated employees delay or reduce the payment of state UI benefit payments. According to the North Carolina Division of Employment Security, under normal circumstances "any worker who receives severance pay is considered to be attached to that employer's payroll during that time and not eligible for UI benefits. Paid Time Off (Vacation and/or Sick Pay) will not be considered separation pay if the payment was issued as a result of the employer's written policy established prior to your separation. Workers receiving Paid Time Off (Vacation and/or Sick Pay) under these conditions will not be disqualified from receiving benefits."

The order requires that employers temporarily furloughing employees during the COVID-19 crisis do the following to allow workers to collect UI benefits at the same time as they are paid severance pay (referred to as COVID-19 Support Payments):

Employer implementation of COVID-19 Support Payment plans

• Employers must submit employer-filed UI claims, according to guidance provided by the Division, for each employee receiving COVID-19 Support Payments.
• The employer's COVID-19 Support Payment Plan must:
• Detail the anticipated length of the furlough
• State the amount of the COVID-19 Support Payments
• Identify the names of the employees receiving COVID-19 Support Payments
• Include a promise that the employer is not making the COVID-19 Support Payments as a form of remuneration for the employees' performance of personal services during the furlough
• Include a promise that employees are not required to return or repay the COVID19 Support Payments.
• COVID-19 Support Payment Plans must be submitted to the Division.
• COVID-19 Support Payment Plans are not promises by the employer to make the payments listed in the Plans. If employers choose to provide COVID-19 Support Payment Plans that involve a series of payments, employers retain the flexibility to stop those payments before the scheduled end of the plan.
• COVID-19 Support Payments and COVID-19 Support Payment Plans are not promises by the employee to return to work for the employer. Employees who accept COVID-19 Support Payments retain any flexibility they may have to accept other employment.

The order requires the Division to publish a COVID-19 Support Payment Plan form and provide further guidance for employers on its website.

As we previously reported, North Carolina UI benefit charges that are the result of COVID-19 will not be charged to employers' UI accounts.Employers responding to requests for separation information should indicate that the separation was due to COVID-19.(EY Payroll Newsflash Vol. 21, #085, 3-20-2020.)

North Carolina workers filing for COVID-19 UI benefits are not required to conduct a work search while filing for UI benefits.Also, the one-week waiting period is waived for workers filing for UI benefits as a direct result of COVID-19.

For more information on the Division's response to COVID-19, go here.

Ernst & Young LLP insights

Other states, such as South Carolina, have waived (or may waive) the delaying effect of severance payments on COVID-19 UI benefits and require employers to perform certain tasks for workers to qualify for the waiver. Accordingly, employers will need to watch for state developments concerning special state unemployment insurance reporting obligations about severance payments during the COVID-19 emergency.

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EY Payroll News Flash