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Contacts
Originally developed as a response to massive job losses during the Great Depression, unemployment insurance (UI) has since been implemented in all 50 states and U.S. territories to provide financial relief during bouts of high joblessness. During the COVID-19 pandemic, the nature of and requirements for receiving unemployment benefits have changed due to the sudden shutdown of many businesses, resulting in record claims for benefits in a short time.
Unemployment Insurance Funding Measures Specific to COVID-19
In response to the economic downturn associated with the coronavirus pandemic, there have been several federal measures to aid workers and to help states fund unemployment benefits. Information on the current unemployment rate can be found on the NCSL State Unemployment Rates page. It is estimated that 20.6 million or more people have lost their jobs due to COVID-19. According to the Center on Budget and Policy Priorities, monthly unemployment claims rose from 6.4 million in January and February to 21 million in May. High unemployment is expected to continue into 2021.
Since the start of the pandemic, there have been two major pieces of federal legislation surrounding unemployment benefits and funding. The CARES Act, enacted on March 27, 2020, expands the reach of unemployment benefits. Under the CARES Act, the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs provide direct assistance to workers.
PUA provides unemployment benefits to those who would not normally be eligible for unemployment, such as “gig” and self-employed workers. PUA provides 39 weeks of unemployment benefits starting on Feb. 2, 2020. Recently, another seven weeks was added to the PUA program, bringing the total to 46 weeks of benefits. It is also designed to aid workers who have exhausted their regular benefits. The length of time workers receive benefits will be determined by subtracting from the number of weeks workers have received benefits through regular compensation programs. The program, including administration costs, is completely federally funded. The funding for PUA expires Dec. 31.
PEUC is designed for workers who have exhausted regular compensation. The program also provides for more leniency in work-search requirements. PEUC provides another 13 weeks of benefits on top of the regular UI program. It is also completely federally funded, including administration costs. Funding for PEUC also expires Dec. 31.
The Families First Coronavirus Response Act (FFCRA) provides flexibility to state unemployment insurance agencies and helps states with the administrative costs of providing benefits. The act establishes the Emergency UI Stabilization and Access Act (EISAA), which gives states some leniency in temporarily modifying their UI laws in response to the pandemic and ensures extended benefits are federally funded. FFCRA also includes emergency administrative grants to states up to $1 billion in the following areas:
- Emergency Flexibility (UIPL) Change Program.
- Federal funding for extended benefits.
- Temporary assistance with state trust fund advances.
- Technical assistance for short-time compensation (STC).
States qualify for these administrative grants as follows:
- To receive the first 50% of the grant, states must:
- Require employers to notify employees of the availability of unemployment compensation.
- Allow UI claims to be processed in at least two of three ways: in-person, phone or online.
- States receive the second 50% of the grant if:
- Initial claims from unemployment increase by 10% over the “rolling quarter.”
- States show a commitment to maintain and increase access to the UI system.
- States ease eligibility requirements.
General Unemployment Insurance Overview
General unemployment provides benefits for workers between 12 and 26 weeks, depending on the state. It is intended to provide workers with about half of their normal monthly wages, with a maximum benefit cap. The cap indicates that workers with higher salaries may receive benefits that make up a lower percentage of their normal wages than workers with lower salaries. The benefit cap varies by state, meaning that in some states with a low benefit cap, the maximum unemployment benefits are less than 50% of many employees’ normal salaries. This chart indicates the minimum and maximum benefits by state in January 2020:
|
State
|
Minimum Weekly Benefit ($)
|
Maximum Weekly Benefit ($)
|
|
Arizona
|
45
|
275
|
|
Alaska
|
56-128
|
370-442
|
|
Arizona
|
187
|
240
|
|
Arkansas
|
81
|
451
|
|
California
|
40
|
450
|
|
Colorado
|
25
|
561 or 618
|
|
Connecticut
|
15-30
|
649-724
|
|
Delaware
|
20
|
400
|
|
Washington, D.C.
|
50
|
444
|
|
Florida
|
32
|
275
|
|
Georgia
|
55
|
365
|
|
Hawaii
|
5
|
648
|
|
Idaho
|
72
|
448
|
|
Illinois
|
51-77
|
484-667
|
|
Indiana
|
37
|
390
|
|
Iowa
|
72-87
|
481-591
|
|
Kansas
|
122
|
488
|
|
Kentucky
|
39
|
552
|
|
Louisiana
|
10
|
247
|
|
Maine
|
77-115
|
445-667
|
|
Maryland
|
50-90
|
430
|
|
Michigan
|
150-180
|
362
|
|
Minnesota
|
28
|
462 or 740
|
|
Mississippi
|
30
|
235
|
|
Missouri
|
35
|
320
|
|
Montana
|
163
|
552
|
|
Nebraska
|
70
|
440
|
|
Nevada
|
16
|
469
|
|
New Jersey
|
120-138
|
713
|
|
New Mexico
|
86-129
|
461-511
|
|
New York
|
104
|
504
|
|
North Carolina
|
15
|
350
|
|
North Dakota
|
43
|
618
|
|
Ohio
|
135
|
480-647
|
|
Oklahoma
|
16
|
539
|
|
Oregon
|
151
|
648
|
|
Pennsylvania
|
68-76
|
572-580
|
|
Puerto Rico
|
33
|
190
|
|
Rhode Island
|
53-103
|
586-732
|
|
South Carolina
|
42
|
326
|
|
South Dakota
|
28
|
414
|
|
Tennessee
|
30
|
275
|
|
Texas
|
69
|
521
|
|
Utah
|
32
|
580
|
|
Vermont
|
72
|
513
|
|
Virginia
|
60
|
378
|
|
Virgin Islands
|
33
|
602
|
|
Washington
|
188
|
790
|
|
West Virginia
|
24
|
424
|
|
Wisconsin
|
54
|
370
|
|
Wyoming
|
36
|
508
|
Additionally, states may be eligible to provide additional extended benefits (EB) if economic and unemployment conditions remain poor. Extended benefits are funded by a combination of state and federal mechanisms. States can qualify for EB by measuring unemployment conditions using the equation below:
Equation 1: EB Measurement
Based on the number calculated above using equation 1, states receive the following extended benefits:
Table 1: EB Qualification
|
EB Measurement
|
EB Amount
|
|
Less than 6.5%
|
No extension
|
|
6.5%-8%
|
13 weeks
|
|
More than 8%
|
20 weeks
|
Other formulas are also used to determine the condition of unemployment. These measures are the insured unemployment rate (IUR) and total unemployment rate (TUR). Their equations are as follows:
Equation 2: IUR
The IUR indicates the unemployment rate among workers who are eligible to receive unemployment. Gig and self-employed workers are generally not eligible for unemployment benefits.
Equation 3: TUR
The TUR indicates the unemployment rate within the entire workforce. This value includes those who are typically not eligible for unemployment benefits.
Funding, Solvency and Solvency Measures
The UI system was designed to be forward-funded. This means that, ideally, states will tax employers at a higher rate during strong economic times to build up reserve funds in the event of an economic downturn. However, most states have kept tax rates low in strong economic times, which left many UI trust funds underfunded at the start of the Great Recession. This caused many states to borrow from the federal government to pay out unemployment benefits during and after the recession. States must repay the loans, with interest, within two years. If the loans are not repaid on time, the federal tax rate on employers in that state is raised each year until the loans have been repaid.
Federal Unemployment Tax Act
The Federal Unemployment Tax Act (FUTA) provides a federal tax structure to fund states’ unemployment insurance systems. The tax is placed on employers within the state. The basic formula for calculating the tax is as follows:
Equation 4: Basic FUTA
The basic FUTA is calculated by multiplying the first $7,000 an employee earns each quarter by a tax rate of 6%. However, employers who pay the state unemployment tax receive an FUTA tax credit of 5.4%, reducing the FUTA tax rate to 0.6%. Thus, many employers are taxed as follows:
Equation 5: FUTA with tax credit
thus,
Equation 6: FUTA with tax credit
It should be noted, however, that while there are ongoing funding and solvency issues with the unemployment insurance system, the Center on Budget Policy and Priorities estimates that every dollar spent on UI results in a subsequent $1.55 in economic activity.
Solvency Measures
The U.S. Department of Labor (DOL) has established a series of measures to gauge the relative health and solvency of UI systems. A 2020 DOL report evaluated the trust fund solvency for all 50 states’ unemployment systems. The report uses a combination of formulas, including the reserve ratio (RR), benefit cost rate (BCR) and the average of the three highest BCRs in the last 20 years to establish a minimum solvency rate. The formulas are calculated and evaluated as follows:
Equation 7: Reserve Ratio
The DOL declares that the RR is the simplest solvency measure. It can be used on its own or as part of a system of equations used to more accurately determine fund solvency. The RR can then be compared to the benefit cost rate:
Equation 8: Benefit Cost Rate
More commonly, the BCR is used by taking the average of the three highest BCRs in the last 20 years. Because benefits paid increases relative to wages paid during periods of high unemployment, which generally occur during economic downturns, the highest BCRs usually occur during downturns. This value is then compared to the RR to determine minimum solvency. This is called the average cost multiple.
Equation 9: Average Cost Multiple
As a general rule, if a state’s average cost multiple is greater than 1, the state has achieved minimum solvency. As of February 2020, average-cost-multiple values range from 0.21 to 2.53 among the 50 states.
Employer Tax Rate
A recent article from the Bureau of Labor Statistics discusses different methods to calculate the marginal cost of unemployment insurance tax to employers when they lay off workers.
A key factor in calculating marginal cost is determining a company’s experience rate. Experience rate is calculated as follows:
Equation 10: Employer Experience Rate
In this equation, average payroll is typically averaged over the previous three years. As benefits increase with each employee the company lays off, the difference between taxes paid and benefits assigned decreases, thereby decreasing an employer’s experience rating. If benefits assigned exceeds taxes paid, the company’s reserve balance decreases, increasing the UI tax rate. Each state maintains its own tax schedule, with varying tax rates based on experience-rating intervals. The number of tax rate intervals ranges from 10 to 40.
Tatiana Follett is an intern and Zach Herman is a policy associate in NCSL’s Employment, Labor and Retirement Program.
Additional Resources