Paying federal and state unemployment taxes is not optional and employers have to be aware of their responsibilities when it comes to filing or responding to unemployment claims. This is especially important in light of the COVID-19 pandemic that caused businesses to let employees go.
While it can be challenging to understand exactly how unemployment benefits work, what responsibilities employers have, what taxes are owed and more, not following the rules can result in hefty penalties. Therefore, it is essential that employers take necessary measures in situations when employees file for unemployment claims.
Understanding Unemployment Insurance
Unemployment insurance provides payments to workers who have been let go due to a factor out of their control. In these situations, they can apply to receive unemployment benefits or a percentage of the wages they would have earned if they were still employed. However, some unemployed workers cannot qualify. For example, workers who are fired for misconduct or company policy violations, those who leave voluntarily, or independent contractors.
Programs to provide unemployment benefits are managed at both the federal and state levels, and businesses fund these programs by paying state and federal taxes. Each state has its own unemployment insurance program, overlooked by the federal government. Given that each state has its own rules for administering unemployment benefits, it is important to take this into consideration if companies have locations in multiple states.
Unemployment taxes consist of the Federal Unemployment Tax Act (FUTA) tax while states use a State Unemployment Tax Act (SUTA) tax. FUTA is an employer-only tax, which amounts to 6% of the first $7,000 each employee earns per calendar year. This means the maximum employers pay per employee is $420, but in some states, they are eligible to receive a tax credit and decrease the FUTA tax rate.
When it comes to SUTA taxes, each state is responsible for determining its own tax rates. This is usually based on the number of employees, how much has already been paid into the unemployment insurance system, and the number of former employees that have claimed unemployment benefits.Use this detailed guide to improve unemployment claims management and find the best approach to reduce unemployment insurance costs.
Coronavirus Unemployment Benefits
In response to the Coronavirus crisis, the federal government expanded the existing unemployment benefits system. In most states, workers could receive 26 weeks of unemployment benefits and a set percentage of their average annual pay. However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act changed unemployment rules for 2020. These changes include providing for an extra $600 weekly payment, apart from the weekly benefit amount an eligible employee otherwise receives under state law, and increasing the maximum number of weeks an individual may receive benefits.
Eligible employees are not required to make a separate application for this federal support. Instead, Pandemic Unemployment Assistance is provided through state unemployment agencies, just like normal unemployment benefits. To receive PUA, employees have to prove they unemployed, their hours are reduced, they are unable to work, or unavailable to work because of one of the following reasons:
- An individual is diagnosed with COVID-19 or has symptoms of it;
- A member of your household has been diagnosed with COVID-19;
- An individual is providing care for someone diagnosed with COVID-19;
- An individual is providing care for a child or other household member who can’t attend school or work because it is closed due to COVID-19;
- An individual is quarantined or is advised to self-quarantine;
- An individual was scheduled to start employment and does not have a job or cannot reach a place of employment as a result of a COVID-19 outbreak;
- An individual became the breadwinner for a household because the head of the household died as a direct result of COVID-19;
- An individual had to leave their job as a direct result of COVID-19;
- A place of employment is closed as a direct result of COVID-19; or
- An individual meets other criteria established by the Secretary of Labor.
Since the PUA program expires at the end of 2020, unless Congress acts to extend it, a significant number of employees may stop getting payments. According to Century Foundation analysis, the largest share of affected workers is in California, Texas, and New York, while some states are projected to have more than 150,000 workers eligible for unemployment benefits.
Changes to Employer Responsibility for Unemployment Benefits
While it remains uncertain what may happen to unemployment benefits extended with the CARES Act, employers need to understand how the COVID-19 pandemic has changed the unemployment landscape. In most states, employer responsibilities and tax obligations have not changed. One exception is Georgia, where employers have to file weekly unemployment claims on behalf of workers who have been furloughed or had their hours temporarily reduced. Even though most employers do not face increased responsibility, it is advisable to pay close attention to changing regulations related to unemployment benefits. This is especially important if they find themselves in a situation where it is necessary to lay off workers. Unemployment benefits are an inevitable part of running any organization, but responding to them can be complex and time-consuming. Furthermore, erroneous unemployment claims can cost businesses hundreds of thousands of dollars. However, outsourcing the entire process helps to reduce the risk, cost, and burden of managing unemployment benefits. As a result, employers can experience a number of benefits, such as identifying potential errors before filing, getting instant access to unemployment claims cases, timely responses to cases and hearings, and effective measuring of compliance effectiveness.