There are federal and state laws which provide some protection for dislocated or terminated workers against the economic hardship of unemployment. The remedial nature of these statutes is designed to provide funding for employees who have been terminated through no fault of their own. Each eligible employee is entitled to draw weekly benefits called unemployment compensation from the job insurance fund. Job insurance benefits are paid into a trust fund which is financed by a payroll tax levied upon employers. The weekly benefit paid to a jobless worker is typically determined by a formula which is revised annually to reflect funds in the trust fund and changes in the economy which impact the trust fund amounts.
Payment of job insurance taxes. Most employers or "employing units" as they tend to be called under state law, are required to register with the appropriate state unemployment compensation department and are also obligated to pay job insurance taxes. The employing units maintain personnel records which establish the name of each worker, social security number, dates of employment and separation, scheduled hours, total wages paid for employment and the dates of payment. These records then are part of the documentation which ultimately establishes an employee's eligibility for unemployment compensation.
In order for a business to be considered an employing unit, it is typically required to have employees performing services for at least a portion of a day in at least 20 different calendar weeks in a given calendar year. In most states, the weeks do not need to be consecutive and the individuals are not required to be employed in every single week.
Employer duties in paying job insurance contributions. Employers are typically obligated to report wages on a calendar quarter basis. Many times, states reserve the right to audit employer payroll records to ensure that payments are appropriately made based upon wages paid to employees. Among the types of payments which are not construed as "wages" under most state statutes are the following:
- 1. Retirement payments
2. Reimbursement for ordinary business expenses
3. Sick pay
4. Supplemental unemployment benefit payments
Contribution or tax rates. Under most state unemployment compensation programs, the methodology for computing an employer's annual tax liability can be fairly complex. Many states utilize tax tables which seek to take into account the differences between employers who have frequent claims for unemployment compensation and those who do not. In general, formulas will take into account an employer's average annual taxable payroll along with an annual average of benefits charged to an employer. The benefit ratio is then plugged into a tax rate formula which assigns a tax rate to an employer on an annual basis. Typically, an employer has an opportunity to appeal an assessed tax rate through the state agency and into the judicial system.
Employee qualifications for benefits. When a worker becomes unemployed, he/she must qualify for job insurance benefits by meeting certain eligibility requirements typically including the following:
- 1. Employee must have been paid wages of certain minimum amounts for work performed.
2. The employee must have been employed by employers who paid unemployment taxes.
3. The employee must register with the state agency to find a new source of employment and must report progress periodically.
4. The employee must file an appropriate claim for unemployment compensation benefits.
5. The employee must be available for and actively seeking work.
Disqualification for benefits. There are several ways in which an employee might become disqualified from receiving unemployment compensation benefits. Among the more common reasons recognized through a state or federal program include the following:
- 1. The employee has committed misconduct which prompted the severance of employment.
2. The employee refused to accept suitable work or refused to make him/herself available for work.
3. The employee was involved in a labor dispute which caused the unemployment.
4. The employee voluntarily quit work without cause attributable to the employer.
5. The employee is receiving job insurance benefits from another state.
Voluntary quit. When interpreting the term "voluntary quit", the state agency will typically find that an employee is not disqualified for benefits if he/she was given the "non" choice of either resigning or being terminated. In addition, a good cause for a voluntary quit may arise if an employee is subject to harassment, discrimination, or a material change in the terms and conditions of employment.
Misconduct. Most states will disqualify an employee from receiving unemployment compensation benefits if he/she was terminated for misconduct as defined by the state statute or regulations. Such misconduct is typically a deliberate or willful act on the part of the employee which is contrary to the employer's best interest. Many times, states differentiate willful or wanton misconduct from mere negligence, incapacity, inadvertence, or a failure in good judgment. Further, the act of misconduct must be a "current" act as opposed to a prior act which was not the precipitating reason for the termination.
Suitable work. Employees who refuse to accept suitable work will often be disqualified under state unemployment compensation statutes. Suitable work is determined by focusing upon factors like the health and safety risks, the individual's prior training and experience, location of the work, substantial equivalence of gross weekly wages, etc. to determine whether the alternative work is truly comparable to that previously held by the individual.
Determining eligibility for benefits. Once an employee suffers a separation or break in employment, the employee is given the opportunity to file a claim for unemployment compensation benefits with the appropriate state agency. The notice of the claim is sent to the employer and the employer is typically given an opportunity to file some type of protest to the claim within a specified period of time. The employer's protest must be based upon facts which would tend to satisfy the legal requirements for disqualification. After a protest is filed, the administrative agency in charge of unemployment compensation benefits will typically schedule a fact finding to review the employee's eligibility for benefits. Often, state agencies have some rather elaborate internal procedures for providing for a formal hearing, including presentation of witnesses and evidence tending to bolster or cut away at an individual's claim of eligibility for unemployment benefits. After the state unemployment compensation agency has rendered a final decision, the losing party is typically given the option to appeal the administrative decision to a court of competent jurisdiction within the state.
Benefit payments. Benefits are often limited to a set period of time depending upon the wage credits which are available for the eligible employee based upon previous wages earned and employer contributions to the fund. In some states, individual wage credits are also dependent upon the type of event which caused the loss of employment. As an example, if an employee was forced from gainful employment because his/her employer went out of business, an individual may be given greater wage credit. An individual's wage credit may be greater when the worker is left unemployed because an employer went out of business. Further, the worker may be entitled to a greater period of unemployment compensation in such a circumstance. Extended benefits may be available to an employee depending upon the level of unemployment in the state. The federal government has intervened in such circumstances to provide employees with extended benefits recognizing the difficult employment environment in the state.
Like workers' compensation, unemployment statutes are designed to provide a liberal remedial benefit for employees who find themselves out of work through no fault of their own. An employer who seeks to take away that benefit must establish a clear factual basis for the disqualification or a defense to unemployment compensation will be rejected by the administrative agency and the courts.