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A Crash Course on Unemployment Benefits During the COVID-19 Pandemic

Because the unemployment rate has been at record lows for the last decade, it is not surprising that many managers have only a cursory knowledge about how unemployment benefits work. As a result of the COVID-19 pandemic, many companies are considering furloughs and layoffs and would like to be able to assist their laid off employees in navigating the unemployment insurance system. In order to help our readers, we thought this would be a good time to provide a “primer” on unemployment benefits.

  1. How do employees file for unemployment benefits? The first thing to understand about unemployment benefits is that the laws and regulations governing these benefits vary from state to state. One thing that employers can do to assist employees who are being furloughed or terminated is to familiarize themselves with the process for applying for unemployment benefits in each state where they do business. In most states, employees can apply for benefits on line, so providing employees with the website address and instructions on how to complete the application is likely to be appreciated. Many states also have toll-free numbers where assistance can be sought. However, employers probably should warn affected employees that they will need to be patient since many of states’ unemployment insurance websites have been crashing because of an unprecedented number of claims.
  2. Are employees eligible for unemployment benefits if their hours are reduced? Depending on the law of the state where the claim is being made, employees may be eligible for partial unemployment benefits. In Texas, for example, partial unemployment benefits are payable to employees who qualify for and participate in an approved Shared Work Plan where eligible employees receive both wages and unemployment benefits.
  3. What kind of benefits can an employee expect? Here again, benefits vary from state to state, but they are typically based on an employee’s wages during one or more quarters during the preceding 18 months. In Texas, for example, the weekly wage is obtained by dividing the earnings for the highest paid quarter of the base period (first four of the five calendar quarters preceding the quarter of the termination) by 25, up to a maximum of $521 per week. (Benefits range from $235 in Mississippi to $795 in Massachusetts). Employees in most states, including Texas, are ordinarily entitled to 26 weeks of benefits.

The Corona Aid, Relief, and Economic Security (CARES) Act that was signed by President Trump on March 27, 2020 will temporarily expand unemployment benefits for employees who lose their job due to the Coronavirus pandemic, because the Federal government will provide an additional $600 per week through July 31 to any employee receiving unemployment benefits. This will result in some lower paid workers earning more than 100% of their usual paychecks for a temporary period. CARES will also extend regular benefits (not the additional $600) for an additional 13 weeks.

  1. Who will end up paying for these additional unemployment benefits? Ultimately, employers usually pay the cost of providing unemployment benefits through unemployment taxes that are paid to both the federal government and their states. (Non-profits may opt to self-insure.) Employer’s tax rates are regularly adjusted to reflect the number of claims charged back to the employer. Hence, an employer that decides to lay off a large number of employees during the COVID-19 pandemic is likely to see a significant increase in its unemployment tax rate. However, the costs are likely to be spread over a long period of time since there is maximum tax rate.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.