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Updated: May 19, 2022
Unemployment benefits are payments that are made to employees who have lost their job through no fault of their own. The amount paid and the length of time an employee can collect unemployment benefits vary by state, but the goal is always the same: to help laid off employees bridge the financial gap between jobs. Rules for eligibility, applications, and benefits also vary significantly from state to state, so it’s important to be clear about local rules and requirements before applying.
As we mentioned, every state sets its own guidelines for unemployment insurance requirements. Typically, employees qualify when they:
Federal law permits significant flexibility for states to amend their laws to provide unemployment insurance benefits in multiple scenarios related to COVID-19. For example, federal law provides states flexibility to pay benefits where:
The Department of Labor (DOL) also sent a letter to states on March 12, 2020, to advise them that they are free to waive the seven-day unpaid waiting period for benefits that many of them now have in place.
In this letter, the DOL also reminded states that individuals may also be eligible for partial unemployment insurance if their hours have been reduced significantly but are technically still employed.
In addition, federal law does not require an employee to quit or be laid off in order to receive paid leave benefits due to the impact of COVID-19. Check with your state’s unemployment insurance program regarding the rules in your state.
Some state online application systems have been overwhelmed online, so some have recommended calling in. For more information on small businesses and COVID-19, visit our resource center.
To receive unemployment insurance benefits, terminated employees will need to file a claim with the unemployment insurance program in the state where they worked. Here’s where to start:
Once an application is accepted, terminated employees typically have to recertify their unemployment application weekly to maintain their benefits. This step typically requires them to state that they are available for employment and looking for employment, and it’s usually quickly done online or over the phone.
An employee can be disqualified from unemployment benefit eligibility in most states if he or she is fired for misconduct, willful behavior, or other justifiable “good cause” related to the employee’s on the job performance.
An employee is not usually eligible for unemployment if they voluntarily leave a job, unless they have good cause for leaving. When an employee quits their job, they can show good cause for things like:
Each of these varies by state, so it’s important to check with your state’s requirements.
If an applicant is denied unemployment benefits, the process to appeal the decision differs in each state. If possible, they should gather supporting documentation and any witnesses they need for an appeal, and continue filing for unemployment throughout the process. Timing is important: in some states, applicants are given as few as 10 days to file an appeal for denied benefits.
The U.S. Department of Labor’s Unemployment Insurance program is funded through collecting payroll taxes as part of the Federal Unemployment Tax Act (FUTA). Employers are required to pay FUTA taxes to the IRS, but unlike social security taxes, there is no employee contribution.
The standard FUTA tax rate is 6.0% on the first $7,000 of taxable wages per employee, which means that the maximum tax as an employer has to pay per employee for the 2020 tax year is $7,000 x 6% = $420
Once an employee makes $7,000 in gross wages for the year — that’s it. They no longer have to pay FUTA for that particular employee.
In addition, employers may also pay taxes according to their State Unemployment Tax Act (SUTA). In some states, unemployment taxes may also be called State Unemployment Insurance (SUI), Employment Security Tax (EST), or Reemployment tax. In most states, SUTA or SUI is only paid by the employer. However, employees in states such as Alaska, New Jersey, or Pennsylvania must also contribute to their state unemployment taxes. Employers in any of these states are required to withhold state unemployment tax from employees’ wages and remit them to the state.
Unemployment isn’t something employees or employers look forward to dealing with. We hope this guide has been helpful as you navigate the process. And if you’re an employer who is preparing to lay off an employee, you might also be interested in our guide to employee terminations.
This article is for informational purposes only and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for formal consultation.