Cost Savings Examples of Supplemental Unemployment Benefit Plans

***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***

Below are two examples that compare the costs to an employer trying to continue 100% of an employee’s take-home pay with and without a SUB plan.  Please note that these examples exclude the cost of employer-paid benefits.  They also exclude all withholdings from an employee’s gross pay, other than FICA.

 Examples

Continuing 100% of an Employee’s Take-Home Pay Without A SUB Plan

Assume that an employee’s gross weekly pay is $1,000.  The employer and employee portions of FICA are 7.65% each.  So, the employer’s wage expense, including FICA, is $1,076.50.  The employee’s take-home pay (gross pay less FICA) is $923.50.

	Employer	Employee
Gross Weekly Pay	$1,000	$1,000
FICA	+$76.50	($76.50)
Employer Wage Expense	$1,076.50	N/A
Employee Take-Home Pay	N/A	$923.50

Continuing 100% of an Employee’s Take-Home Pay With A SUB Plan

Assume that the employee is eligible for the maximum weekly state unemployment benefits of $362 (in Michigan).  Further assume that the employer uses a SUB plan to supplement the employee’s state unemployment benefits to restore 100% of the employee’s take-home pay.

	Employer	Employee
State UE Benefits	N/A	$362
SUB Plan Benefit	$561.50	$561.50
FICA	N/A	N/A
Employer Wage Expense	$561.50
Employee Take-Home Pay	N/A	$923.50

So, in this example, using a SUB plan reduces the employer’s wage expense by $515.00 ($1,076.50 – $561.50).  But the employee’s take home pay remains $923.50.

Conclusion

This is only an estimate.  The actual savings can change by a number of factors such as the cost of employer-paid benefits (which will likely increase savings) and the fact that all employees may not qualify for the maximum state unemployment benefit (which will likely decrease savings).  Additionally, if an employer adopts a SUB plan, the employer should review the definition of “compensation” under the employer’s retirement plan (e.g., 401(k) plan) to make sure that SUB plan benefits are excluded.  Otherwise, an employee’s pay deferral contributions to the retirement plan must be subtracted from the employee’s SUB plan benefits and the SUB plan benefits may need to be included in determining the amount of the employer contribution to the retirement plan (if any).