Can My Employees That Receive Voluntary Retirement Get Unemployment Compensation?

A voluntary retirement plan is a great way to reduce your workforce without all of the headaches that can come with layoffs or other downsizing events. By allowing individuals to choose to leave the company, you can drastically reduce the chances that the event will have a negative impact on your company’s reputation among other things.

Normally, a voluntary retirement incentive is offered to individuals at your company that meet certain criteria. For example, those who take the offer have to be over a certain age and have had to work at the organization for a certain length of time.

Since these individuals have chosen to step down and have not been let go involuntarily, it stands to reason that they will not be eligible for unemployment benefits. However, it is largely dependent on your state because taking a voluntary retirement package can be seen as a reason for someone to take unemployment benefits depending on the state’s laws.

It’s best, at this point, to use an example.

“In Texas, an individual may be eligible for unemployment benefits if he resigned for good cause. Resigning for a good cause work-related reason means a situation that would cause an individual who wants to remain employed leave his employment,” reports the Labor Law Center.

“Resigning instead of risking being laid off in order to receive a severance package may constitute a good cause resignation.”

In other states, it all depends on the circumstance.

“In some states, such as Michigan, an employee who accepts a company buyout may be ineligible to receive unemployment insurance benefits,” reports CareerTrend.

“If you live in Michigan, and you reasonably believed that you would be terminated regardless of accepting the buyout, you may be eligible for unemployment insurance benefits.”

In other words, it’s really tricky to nail down without knowing more about the given circumstances of the offering, what state you live in, and how the local laws are worded.

These examples show that if you are curious as to whether or not your staff members can receive unemployment benefits, you need to check in your state’s laws and examine how those laws are written.

We recommend talking with your legal team about issues like this while you plan the voluntary retirement event. There are many, many laws that dictate what you can and cannot do when you let go older workers. So, while you are making sure your program is compliant with all of those issues on a local, state, and federal level, it’s important to also check in to see if your state allows workers who stepped down to receive benefits or not.

Want to learn more about voluntary retirement? Check out our free pros and cons cheat sheet to see if the incentive is right for your business.

Josh Hrala

Josh is an HR journalist and ghostwriter who's been covering outplacement and offboarding for over six years. Before pivoting to the HR world, he was a science journalist whose work can be found in Popular Science, ScienceAlert, The Huffington Post, Cracked, Modern Notion, and more.