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How does unemployment insurance work for employees?

The federal-state unemployment insurance program was set up in 1935 to provide financial support to workers who have been laid off while they look for work.

The federal-state unemployment insurance program was set up in 1935 to provide financial support to workers who have been laid off while they look for work.

The modern-day unemployment insurance program came out of the Great Depression when millions of workers found themselves without a job. The 1935 Social Security Act created the federal-state joint venture to safeguard individuals against financial distress and destitution for a limited amount of time after they become unemployed.

Currently, the system is not uniform across the US, every state follows some similar general guidelines, but benefits vary from state to state. Not all workers can claim unemployment insurance compensation in normal times, but the covid-19 pandemic brought the failings of the current system to light and there have been proposals to overhaul the program.

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How does unemployment insurance work?

Unemployment insurance is financed through both state and federal unemployment taxes on employers. The state payroll taxes for unemployment insurance vary by state but the federal tax is uniform. As of 2021, the Federal Unemployment Tax Act (FUTA) tax rate is 6 percent of the first $7,000 paid to each employee annually.

The federal government ensures that all states provide basic protections for eligible workers but imposes minimal requirements. States can choose the eligibility criteria, such as the type and duration of prior employment.

The rate that benefits replace wages for the unemployed vary widely from state to state. So too does the number of weeks of unemployment compensation but most states offer 26 weeks of regular unemployment compensation.

In 2021, two states provide more, Massachusetts 30 weeks and Montana 28 weeks. Eight states provide fewer with six states, Alabama, Georgia, Florida, Idaho, Kansas and North Carolina, periodically changing the maximum number of weeks depending on the unemployment rate.

Who is eligible for unemployment compensation?

In order for a worker to claim unemployment compensation he or she must lose his or her job through no fault of their own. If a worker leaves their job voluntarily they most likely will not qualify for unemployment insurance, there are exceptions. Additionally, those who are self-employed such as contractors or gig workers as well as undocumented workers generally cannot claim jobless aid.

The worker must also be actively looking for gainful employment, the “active work search requirement can be fulfilled in a variety of ways and varies from state to state. It generally includes applying for a job in person, by mail or online through a employment service or state job listings board. Another way is applying for work through a temporary staffing agency or registering for work or reemployment services with the state career center. The requirement could also be fulfilled by interviewing for a job, attending a job fair or other event that would help a worker find a new job.

How are unemployment benefits paid?

Many states require that a worker go through a “waiting week” in which no benefits are paid. Only in the following week can a laid off worker file their initial claim. Even then, some states will not make the first payment until three weeks after a worker starts claiming weekly benefits, the federal standard.

Those collecting jobless aid can receive their unemployment payments via paper check, direct deposit to an account or pre-paid debit card, or on a state issued pre-paid debit card. How states send the payments again varies from state to state but states cannot require that those claiming benefits use a state issued pre-paid debit card according to Consumer Financial Protection Bureau.

Claimants should be aware that unemployment benefits are taxed by the federal government and some state governments as well must be declared on tax returns.

Claimants may have to pay back any over payments

In the event that a worker claiming unemployment benefits receives excess amounts they most likely will be asked to repay the overpaid amount back to the state. Overpayments can occur because of unintentional filing errors by the filer or the agencies with which they are filing. The claimant can appeal collection to avoid having to return the money but usually has to do so within a set time limit set by the state. Claimants should check with their state’s unemployment agency for specific details.

If the overpayments were due to intentional erroneous filing by the claimant that constitutes fraud and can have legal implications and result in criminal charges.

Potential changes to the unemployment insurance system

The covid-19 pandemic laid bare the inadequacies of the unemployment insurance program in the US. The patchwork system means that workers in some states have woefully lacking support while they look for a new job. Three senators; Finance Committee Chair Ron Wyden, Michael Bennet, Sherrod Brown are proposing a revamp of the national system which would make benefit protections for workers uniform across the US and fill in gaps exposed by the pandemic-induced economic crisis.

They wanted the measures included in the Build Back Better bill being negotiated in Congress between moderate and progressive Democrats. However, the proposal was not part of the framework when President Biden announced an agreement on Thursday.