Severance Pay & Unemployment Benefits in Texas: What You Need to Know

Go home with your severance pay.

Texas has employment at will. The employer can hire employees, keep them as long as needed and dismiss them when no longer needed. Likewise, the employee can depart at will. An employer may provide severance pay when it dismisses an employee, but severance pay is optional. The effect any extra payment has on unemployment benefits in Texas may depend on what the employer calls the payment.

Texas Payday Law

Section 61 of the Texas Labor Code gives the Texas Workforce Commission authority to regulate the Texas Payday Laws. An employer has six days after termination of employment to pay the employee, but if the employee chooses to leave employment, the employer may delay payment until the next regularly scheduled payment date. If the employer pays the employee extra or for weeks not worked, it is important to note what the employer calls the extra pay.

Severance Pay

The employer does not owe severance pay to the ex-employee unless it promises this payment by contract or written notice. The Texas Workforce Commission reports that Texas courts define severance pay as an obligation by the employer set by a formula or based on years of service. For example, payment of a month's salary for every year of employment is severance pay. You may receive severance pay, and it will not affect unemployment benefits. Disclose the payment to the Texas Workforce Commission. If your employer contests your right to unemployment benefits, the law is on your side.

Wages in Lieu of Notice

For unemployment compensation, wages in lieu of notice do not receive the same treatment as severance pay. The employer has no obligation to pay wages in lieu of notice. He may call the employee in, offer a week or more of wages to help the employee in the transition, provide no notice of dismissal, and be within the law. Wages in lieu of notice delays payment of unemployment compensation until the weeks of wages run out. The employee does not receive unemployment compensation for weeks the wages would cover. Texas employers save money by using this dismissal method. Employers must take care to make sure that they uphold child support laws in distribution of wages or severance. Under some circumstances, the employer is obligated to assist in recovering child support payments in Texas.

Incentive Pay

Employers sometimes provide payment in exchange for a release or waiver of liability when an employee leaves employment. This payment does not affect unemployment benefits, but is a contract between the parties. Because it is not part of the wage agreement, this contract is not enforceable under Texas Payday Law, but may be enforceable in the state courts.