Guest DevoFan Posted February 28, 2003 Posted February 28, 2003 To All, I recently got layed off (before Christmas) by my former company after 15 years of service. I was given a severance of 15 weeks starting January 1, 2003. There is a good chance I may rehire (say, April 1, 2003) with the same company under a different position. They will bridge my benefits, allowing me to keep my 15 years seniority and benefits. Is it customary for a company who rehires a former employee and bridges the benefits, to demand repayment of any "unused" severance? I would appreciate your thoughts on this matter. BTW, they made a lump sum payment of severance in January 2003. Thank you, DevoFan
Mary C Posted February 28, 2003 Posted February 28, 2003 DevoFan - we are a large (120,000 employee) nationwide company and yes, if we rehire within the severance period (i.e., in your case within 15 weeks after your termination), then we do require a repayment of the remaining severance.
Guest DevoFan Posted February 28, 2003 Posted February 28, 2003 Hi Mary C, thank you for replying. Will you please explain why it must be paid back? Are there legal issues? It seems to me that when a severance is given out (especially in a lump sum), it is final. The recipient of a severance can use it for whatever means necessary to stay afloat, better himself, pay-off debt, etc... In my case, it was due to a reduction in work force, and had nothing to do with job performance. Therefore, if my former company decides to rehire, I think it is silly for them to demand repayment of unused severance, because it was their responsibility in the first place for laying me off. Oh well.... DevoFan
KIP KRAUS Posted February 28, 2003 Posted February 28, 2003 DevoFan Does your former employer have a written severance plan set up by a plan document and Summary Plan Description? If so, these provisions should be in writing in both documents. If not. Did you sign a waiver and release document when you were laid off? If so, these provisions should be in the document. In any event, as Mary C says this is common practice. Also keep in mind that severance pay is not intended to be a windfall. If nothing was in writing regarding the paying back of unused severance upon rehire, you may or may not have a legal issue. You may want contact an attorney if this is the case
Guest DevoFan Posted February 28, 2003 Posted February 28, 2003 Hi Kip, there is nothing in their HR policies concerning bridge benefits for rehires. I was told that they would create a new policy and that I would be the guinea pig. I did sign a waiver and release document which guaranteed receiving of the severance (all in 1 lump sum). Thanx DevoFan
mbozek Posted February 28, 2003 Posted February 28, 2003 DevoFan: If there is nothing in your agreement requiring that you pay the funds back you are not required to do so but the Co could revoke its offer of rehire. However, there are some common sense reasons why it should not request a payback of severance benfits, including the terms of its plan at the time you left and the fact that you waived your rights under all fed and state discrimination laws as a condition of receiving the payments. Making you pay the money back recinds the waiver. Requiring that you return the full amount of your severance pay is a little unfair since you will be out of work for 3 months. In effect the company gets you back without paying for the time you have been unemployed. Also you have already been taxed on the benefit. The company would have to complete an agreement rescinding the payment and reverse the taxation of the payments which can be very complicated. If you agree to return you need to be held harmless on the taxes- you really need an attorney. mjb
Guest DevoFan Posted February 28, 2003 Posted February 28, 2003 Hi mbozek, I would not be required to pay back the full severance, rather, any unused severance. I was paid 15 weeks severance on 1/1/2003. This would last until April 16, 2003. Suppose I rehire on 4/1/2003. I would have to pay back 17 days. Thanx for your reply. DevoFan
pmacduff Posted February 28, 2003 Posted February 28, 2003 I don't know a thing about severence pay, (I'm a pension geek by trade), but my thought would be to make sure I didn't start until after April 16th especially if it is a standard policy to require repayment of unused severence (which everyone seems to agree it is). If the Company wants you back that much, I would think they would be receptive to you starting April 16th instead of April 1st. Just my unsupported 2 cents.......
KIP KRAUS Posted March 1, 2003 Posted March 1, 2003 DevfoFan You’re talking about 3 weeks or so that they will want returned? Why push the issue at the risk of not being rehired for 3 weeks of pay? If you received your lump sum payment in January you wont be taxed on it until the end of the 2003 tax year so have them spread the pay back repayments over your paychecks for the remainder of the year by adjusting your pay. That will take care of the tax adjustment. Just make sure they agree in writing to adjust your pay back to what it should be after the pay back is done. Personally, a job in hand these days is worth the minor hassle.
Mary C Posted March 3, 2003 Posted March 3, 2003 DevoFan: Severance is considered an up-front, lump-sum payment in lieu of earned salary to ease in transition of employment, not a bonus or windfall. If you reemploy at the same company before the end of your severance, you are collecting earned pay. You are, therefore, being paid twice for the same week. If the company erroneously issued you two paychecks for the same week, would you would feel you were entitled to keep both? You've been paid since January 1 without having to work so in fact, you've really not out any money at this point. Is double dipping so important you risk losing any seniority/vacation/ continued pension accrual/medical benefits you built up over 15 years? Think of it, 3 weeks vs. 15 years? Could you walk into a new position at a new company with the same seniority, pay and benefits as a 15 year employee? I don't mean for this to sound so harsh, and I'm sorry if it does. I've been caught in workforce reductions and have received severance, too, and believe me, in some instances the company were to extend an offer for reemployment based on repayment of a small portion of severance, I would have jumped on it.
mbozek Posted March 3, 2003 Posted March 3, 2003 D: If you repay any portion of your severance benefits to the er make sure the er reduces the W-2 for severance payments to take into account the repayment. Otherwise you will be taxed on payments you did not keep. mjb
Chaz Posted March 26, 2012 Posted March 26, 2012 I'd like to revisit this thread. Situation: An employee terminates in 2011. She receives a lump sum severance payment of $10,000. The employee is rehired in 2012 and, under the terms of the severance plan, is required to repay 1/2 ($5,000) of the severance amount (because it was "unused"). What is the authority for the employer to issue a revised Form W-2, if that is what the employer is required to do? The closest thing I can find is IRS Publication 15, which discusses wage repayments, but that is only in the context of wages received in "error." Under those circumstances, the employer is required to file a Form 941-X or 944-X to recover medicare/SS and file a Form W-2c but I think my circumstances are different. Thanks.
jpod Posted March 26, 2012 Posted March 26, 2012 If the repayment is being made in a subsequent taxable year, the employer can't and shouldn't try to do anything to "undue" $5,000 of W-2 wages for the prior year. Employee may or may not be entitled to a tax deduction for a repayment in 2012, but that would have no effect on employer's tax reporting or tax withholding.
masteff Posted March 26, 2012 Posted March 26, 2012 I agree. The employee is most likely a cash basis taxpayer. If repaid in 2012 then reporting, if any, will be for 2012. This does mean the EE will pay taxes on the income in 2011 and then have reduced taxable income in 2012. The EE should be suggested to consult a competent professional tax adviser. Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
Chaz Posted March 26, 2012 Posted March 26, 2012 Thanks for the quick replies! Do either of you have any authority for your position that the employer need not take any action for 2011? What about with respect to Medicare and SS withholding amounts? What "reporting" must be done for 2012?
Chaz Posted March 27, 2012 Posted March 27, 2012 For posterity sake, there is good information to be found in IRS Rev. Ruling 79-311 and info letter 2005-0146.
masteff Posted March 27, 2012 Posted March 27, 2012 See "Repayments" on page 9 here: http://www.irs.gov/pub/irs-pdf/iw2w3.pdf Looks like you do a W-2c to correct SS and medicare only (and then the 941 and all that fun stuff). And for the EE see IRS Pub 525 page 36 here: http://www.irs.gov/pub/irs-pdf/p525.pdf Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
Chaz Posted March 27, 2012 Posted March 27, 2012 See "Repayments" on page 9 here: http://www.irs.gov/pub/irs-pdf/iw2w3.pdf I went down that road and that language seems to apply only in the case of repayment wages paid in "error." Here, there was no error. In any event, the IRS letter and revenue ruling say pretty much the same thing. Thanks for the help!
Guest odessa477 Posted September 4, 2012 Posted September 4, 2012 Yes, they will probably demand for a repayment of the severance if they rehire you.
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