Can I Collect Disability Benefits While Receiving Severance in Los Angeles?

If you're dealing with a disability or serious medical condition on top of losing your job, you need to know whether accepting severance will affect your disability benefits. The general answer is encouraging: in most cases, you can collect both. But the specifics matter, and the type of disability benefit makes a difference.

California State Disability Insurance (SDI)

SDI is managed by the Employment Development Department (EDD) and provides short-term disability payments to California workers who can't work due to a non-work-related illness, injury, or pregnancy. The benefits replace about 60-70% of your wages for up to 52 weeks.

The key question for SDI is whether you are "unable to do your regular or customary work" during the period you're claiming benefits. SDI is not based on employment status. You don't need to be employed to collect it. You need to be disabled.

Receiving a lump sum severance payment generally does not affect SDI eligibility because the severance is not payment for services rendered during the disability period. You earned the severance by agreeing to release claims, not by working. However, if your severance is structured as salary continuation (you remain on payroll and receive regular paychecks), the EDD may consider those payments as wages, which could affect your weekly SDI benefit amount.

The distinction is technical but important: lump sum severance is typically not considered wages for SDI purposes, while salary continuation may be. If you have a choice in how your severance is structured and you plan to file for SDI, this is worth considering.

Social Security Disability Insurance (SSDI)

SSDI is the federal disability program for people with long-term disabilities who have worked long enough to qualify. Unlike SDI, SSDI has a five-month waiting period, and the standard is more stringent: you must be unable to perform "substantial gainful activity" (SGA).

Severance pay does not count as earned income for SGA purposes. The Social Security Administration treats severance as a payment based on a prior period of employment, not as evidence that you're currently working. Receiving a severance check does not disqualify you from SSDI.

However, severance can affect the timing of your SSDI eligibility. If your severance is structured as salary continuation with employer-reported wages, the SSA may treat the continuation period as a period of employment. This could delay the start of your five-month waiting period, which delays when benefits begin.

For Los Angeles residents applying for SSDI, the local Social Security office handles these determinations. Processing times in the LA district are notoriously long, so filing promptly matters.

Supplemental Security Income (SSI)

If you're applying for SSI (the needs-based disability program), severance is counted as income in the month received and may count as a resource in subsequent months. A large severance payment could temporarily disqualify you from SSI if it pushes your countable resources above $2,000 (individual) or $3,000 (couple). This is different from SSDI, which has no asset test.

How Your Severance Agreement Affects Disability Claims

When reviewing your severance agreement, watch for these disability-related issues:

The release of claims. Make sure the general release does not include a waiver of your right to file a disability claim with the EDD. SDI claims are statutory benefits, and a waiver of the right to file should not be enforceable, but having the release explicitly exclude SDI and SSDI claims avoids any confusion.

The employment end date. If your severance extends your official termination date, this affects when you can file for SDI. You generally cannot collect SDI while you are still considered an "employee" receiving wages. A later termination date could delay your claim.

Benefits continuation. If your severance includes continued health insurance (COBRA subsidy or extended enrollment), this is especially valuable when you have a disability requiring ongoing treatment. Negotiate for the longest benefits continuation period you can get.

Long-term disability insurance. If your employer provided long-term disability (LTD) coverage, check whether your eligibility survives termination. Some LTD policies allow you to file a claim within a window after employment ends. If you have a condition that may prevent you from working long-term, explore this before your coverage lapses.

Practical Considerations

Filing for SDI or SSDI does not affect your right to receive severance. These are separate systems. But there are practical considerations:

If you're filing for both SDI and unemployment, be aware that you generally cannot collect both simultaneously. SDI requires that you're unable to work. Unemployment requires that you're available and looking for work. You can transition from one to the other, but you can't claim both for the same period.

Severance is different from unemployment. Receiving severance does not prevent you from filing for unemployment in California, though the EDD may consider whether the severance constitutes wages for the period covered.

What to Do

If you have a disability and you're being offered a severance package, consider the payment structure carefully. Lump sum is generally cleaner for disability benefit purposes than salary continuation.

File your disability claim promptly. SDI has a deadline: you must file within 49 days of becoming disabled. SSDI benefits are retroactive to your application date (after the waiting period), so filing sooner means benefits start sooner.

If you're dealing with both a disability claim and a severance negotiation in Los Angeles, a severance attorney can help coordinate the two processes so that one doesn't undermine the other. Free consultations for LA employees.