Both the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act made significant temporary changes to unemployment insurance benefits.
Unemployment insurance benefits are administered by state agencies in coordination with the Federal Department of Labor. Although benefits vary from state-to-state, each state must meet certain requirements to receive federal funding, thus creating broadly consistent programs nationwide. To receive benefits, a person typically must have met a minimum earnings threshold, have lost their job against their will and be actively looking for work. If they receive benefits, they will almost always be worse off financially, with a nationwide average weekly benefit of just $378 per week.
The FFCRA included additional administrative funding to states in anticipation of an increase in unemployment claims. Among other things, states must put in place provisions whereby employers notify employees of possible unemployment benefits and provide alternative filing options for unemployment claims. Participating states are also provided with additional federal funding for “extended benefits” with the federal government covering the full cost for those benefits. Finally, the law incentivized states to eliminate the normal one-week waiting period by providing full federal funding for that week of benefits.
In contrast to the modest unemployment changes in the FFCRA, CARES greatly expanded and increased benefits through three new programs.
Federal Pandemic Unemployment Compensation (FPUC)
Under the FPUC many individuals receiving state unemployment benefits will automatically qualify for an additional $600 weekly payment. Notably, this amount is not adjusted or reduced based on normal state formulas. The DOL clarified in guidance issued on April 4th, that even a $1 weekly state unemployment benefit could trigger the additional $600 weekly payment. While clearly a tremendous benefit for displaced workers, the flat benefit amount coupled with existing state benefits can create unusual economic outcomes.
As an example, a worker in Massachusetts, earning the state minimum wage of $12 per hour would gross $480 per week on a full time (40-hour) work schedule. The normal minimum weekly unemployment benefit in Massachusetts is $278, but with the FPUC benefit, the unemployed worker would now receive $878 per week, nearly $400 more than they received working full time. These higher unemployment benefits may lessen the concern for employers who are forced into furloughing workers but may also temporarily make it more challenging to recruit workers, who in this example would need nearly $22 per hour to match their unemployment benefits. Of course, FPUC benefits are only temporary and are currently set to expire on July 31, 2020.
An additional consideration for employers is that employees participating in state workshare programs may also be eligible for the $600 FPUC benefit. Currently, 26 states, offer such programs whereby an employer can reduce employees’ hours with a portion of those lost earnings made up through unemployment insurance. Under current DOL guidance these workers may be eligible for the full $600 FPUC benefit, which combined with normal unemployment benefits, may result in a net increase in earnings for affected employees. The DOL is actively encouraging workshare programs with the costs fully funded by federal government.
Pandemic Emergency Unemployment Compensation (PEUC)
The PEUC program allows for states to provide unemployment benefits to individuals who have exhausted or are otherwise not eligible for traditional unemployment benefits. For example, someone who had experienced unemployment before the pandemic, may have already exhausted regular unemployment benefits. Under PEUC, they could again qualify for federally funded benefits for up to 13 weeks through December 31, 2020.
Pandemic Unemployment Assistance (PUA)
The PUA program represents the first-time that self-employed individuals (including gig workers) are broadly eligible for unemployment benefits. The PUA program also provides benefits to part time workers, employees with limited work history and others who would otherwise be ineligible for regular unemployment.
Unemployment benefits have previously been unavailable to self-employed individuals, in part, because it’s difficult for state agencies to determine why work stopped when a traditional employment relationship didn’t exist. Furthermore, without a third-party reporting payroll, validating lost earnings may be impossible. Accordingly, self-employed individuals weren’t eligible for benefits and didn’t pay unemployment insurance premiums.
Under PUA, benefits will be broadly available to the above-mentioned workers, but as with all other aspects of unemployment insurance, details will vary from state-to-state and many states are facing challenges in implementation. Unemployment computer systems are simply not setup to deliver this benefit nor have all states settled on how they will document a loss of employment for these non-traditional beneficiaries. States must find ways of delivering the benefits while also combating fraud, all at a time of unprecedented demand.
Unemployment benefits have become a major focus of employee and employer attention. For the most part, an employer has limited involvement, unless disputing a claim. However, in the event of a layoff or reduction in hours, it’s helpful to communicate what benefits may be available to affected workers. Employers may also wish to take into account how workers may be impacted and what if any effect reduced payroll may have on other programs, like Paycheck Protection Program loans.