Unemployment Insurance (UI), which was established in 1935, has been a part of the U.S. economy ever since the Great Depression. It is an integral part of the country’s social insurance system for people who have lost their jobs due to no fault of their own. It helps to speed up economic recovery by putting money in the hands of people who can spend it.
The money received in UI benefits can circulate quickly throughout the economy. The Urban Institute’s Wayne Vroman’s 2010 study on UI “automatic stability” showed that every dollar spent in benefits during recessions helps increase the nation’s output of $2.15 worth of goods and services.
Who Administers Unemployment Insurance?
Each state, Puerto Rico and the District of Columbia, have their own version of the Universal Insurance Program. They follow the federal rules. The Federal government oversees and enforces Federal statutes. However, each jurisdiction decides eligibility, tax amounts and benefit levels. This results in substantial differences between states. Federal law, for example, requires that eligibility be determined based on previous work attachment. However, it is up to the state to determine the amount of benefits and the wage earned in the past to make a claim.
Two taxes finance the program: a federal and state wage tax, which is levied mainly on employers. The federal tax is levied on the first $7,000 a worker earns each year. The UI tax is used to fund the administrative costs of running and federal extensions of benefits such as the Emergency unemployed compensation program (see below section on benefits). The state tax money is used to pay for the benefits checks that are provided to unemployed claimants.
What is Unemployment Insurance in Normal Times?
Federal-state unemployment insurance (UI), as it was pre-COVID-19, temporarily replaces a portion wage for workers who were laid off. This is as long as the worker is available and looking for work. While benefits can vary from one state to the next, most states provide 26 weeks of benefits for unemployed workers. On average, it replaces half of a worker’s previous wages. This program provides economic stimulus to help reduce the severity of recessions by helping workers who lose their jobs in economic downturns.
What are Initial Claims?
The number of initial claims is a measure of the health of a job market. It shows how many people are filing new applications for UI benefits.
although initial claims have decreased in recent years, they still exceed one million per week. The number of people receiving unemployment benefits (often called “continuing cases”) was 32 million. This is roughly one fifth of all workers in the workforce during the week ended June 27, 2020. This includes over 15 million people who have been receiving benefits as a result of pandemic-related expansions to the program.
Who is eligible for Unemployment Insurance?
Unemployment can be defined as the loss of a job due to no fault of yours. Therefore, quitting a job and being fired for cause does not make you eligible for UI. Federal law requires that all state and local government employees and most non-profit organizations employees be covered. However, independent contractors and self-employed workers are not.
To continue receiving benefits, jobless workers who are eligible to receive UI must file every week or every two weeks depending on the state. States require that claimants prove they are looking for work and that they are “able and available” to re-employment. All states have the right to give notices of determination to claimants who are ineligible for benefits due to inability to work, refusal to accept suitable work, unavailability or any other disqualification. Workers usually wait between two and three weeks after filing their claim before receiving their first benefit check.
Workers whose jobs were disrupted by a declared disaster are eligible to receive benefits up to 26 weeks after the event. This applies to natural disasters like earthquakes, floods, hurricanes, tornadoes, and other catastrophes.
What are the Benefits of Unemployment Insurance?
Most states offer regular benefits for 26 weeks. However, ten states have reduced their maximum duration to below 26 weeks in 2019. The average weekly benefit was $369. This replaces approximately 45% of the wages earned by jobless workers.
Extended benefits are available in times of high unemployment and may be added to the regular benefits for the first time. This program assists workers facing unusual offset benefits for 13 weeks after the 26-week maximum. In times of greater economic downturn, states may extend benefits for an additional 13 weeks.
The recent recession saw Congress pass an Emergency Unemployment Compensation program (EUC), which could have allowed some claimants to receive up to 99 weeks of unemployment benefits.
Who pays for unemployment insurance?
Pre-pandemic, regular program funding comes from taxes on employers. This includes state taxes, which vary by state, and the Federal Unemployment Tax Act tax (FUTA), which is 6 percent of the first $7,000 earned by each employee. Employers that pay state unemployment taxes on-time are awarded an offset credit up to 5.4%. This means that the FUTA tax paid by an employee who earns $7,000 or less may be as low as $42. In states that have not repaid their federal Treasury unemployment insurance debt, the credit will be reduced.
Although state spending on UI does not have to be balanced, states can borrow from Treasury if their reserves run out. They must repay the federal government in two to three years or the federal taxes on employers will increase until the debt is paid.
The states have a lot of flexibility for determining benefits. While federal requirements are minimal, all states must provide basic protections to eligible workers. The state can choose how much employer tax they will levy, what benefit level and for how long, and what eligibility criteria they will use, such as prior employment and length. This program is run in a variety of ways by states.
Are all Unemployed eligible for Unemployment Insurance?
No. Normal workers are not eligible for UI benefits. UI benefits do not apply to people who are forced to leave their job, those looking for their first job, or people who reenter the workforce after having left. Traditional students, self-employed workers, gig workers, non-documented workers, or undocumented workers are not eligible for UI benefits.
To be eligible for UI benefits, unemployed workers must have worked at least one year or earned a minimum amount from their previous employer. In 2019, the minimum earnings needed to be eligible for UI benefits were $1,000 to $5,000. The UI recipiency rates, which are the percentage of people who receive UI benefits due to their eligibility criteria, vary significantly between states. The lowest UI recipiency rate in the fourth quarter was 9 percent in Mississippi, while Massachusetts’s rate of 57 percent was the highest.
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, ratified in March 2020, increased benefits of the unemployment insurance system to provide relief to those who are out of work, but some of those benefits expired on July 31, 2020.
If you need help to get what you deserve, contact a Kentucky unemployment lawyer.