Unemployment Claims – Possible Impact for Employers
If we were to put this in the form of a quiz it might go something like this: At the peak of the COVID-driven unemployment claims in 2020, how close did the weekly number of claims come to reaching the peak number of claims during the Great Recession of 2008-2009?
It’s a bit of a trick question as they were not close, they actually far exceeded the claims during the Great Recession – and “far exceeded” is an understatement.
Nationally, for the week of March 28, 2009, UI claims hit a high of 665,000. This was catastrophic given that it was about 2.5 times the claims volume of late 2007. Now consider that, for the week of March 28, 2020, UI claims totaled 6,867,000 – over 10 times the amount of the peak week of the Great Recession! Also consider that just two weeks before the spike, claims were at 282,000 – barely 4% of the volume that was soon to come. And, where are we now? While claims have greatly subsided, as of the last full weekly reporting period (February 6,2021) claims are holding steady at 793,000 – which is still almost 20% higher than the peak of the Great Recession.
From this we can begin to understand why state unemployment departments were not prepared to handle the volume of claims, and many employers and impacted employees had to deal with the frustration of not being able to get questions answered.
For a detailed overview of the current state of UI claims and costs, please continue to our blog.
At both the state and federal level an effort has been underway to ease the potential burden these excessive claims could have on UI tax rates and (for reimbursable employers) UI charge statements. Most significantly, for taxable employers (those that pay an unemployment tax) is the “non-charging of benefits.” So far, all states except for Oregon, Nevada, Alaska, Virginia, West Virginia, Maryland and New Jersey have instituted some type of non-charging of benefit provision. This means that the benefits are not charged to the individual employer, but are “socialized” and come out of state trust funds. This is good news in the short term; but, quite likely, will have the long-term effect of leading to an increase in tax rates to make up for the deficit in the state UI trust funds.
For reimbursable employers, the federal government is currently picking up 50% of all UI charges at least through mid-March. It is still undetermined as to what might happen after that point
On December 27, 2020, the President signed into law the Consolidated Appropriations Act, 2021. There are numerous UI-related provisions in this Act, including:
- Extension of Federal Pandemic Unemployment Compensation: The Federal Pandemic Unemployment Compensation (FPUC) supplement is restored to all state and federal unemployment benefits at $300 per week, starting after December 26 and ending March 14, 2021.
- Extension of Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations: The CARES Act provision, which amended the FFCRA to provide federal support to cover 50% of the costs of unemployment benefits for employees of state and local governments and non-profit organizations, is extended through March 14, 2021.
- Mixed Earner Unemployment Compensation: A federally funded $100 per week additional benefit will be provided to individuals who have at least $5,000 a year in self-employment income, but are disqualified from receiving Pandemic Unemployment Assistance (PUA) because they are eligible for regular state unemployment benefits. This mixed-earner supplemental benefit would be added to the FPUC and would terminate along with it on March 14, 2021. This provision would be effective for future unemployment benefit payments after a state chose to make an agreement with the Department of Labor.
- Extension and Benefit Phase-out Rule for Pandemic Emergency Unemployment Compensation: 1) Extends Pandemic Emergency Unemployment Compensation (PEUC) to March 14, 2021 and allows individuals receiving benefits as of March 14, 2021 to continue through April 5, 2021, as long as the individual has not reached the maximum number of weeks; 2) Increases the number of weeks of benefits an individual may claim through the PEUC program from 13 to 24; and 3) Provides rules for states about sequencing these benefits with other unemployment benefits.
- Extension and Benefit Phase-out Rule for Pandemic Unemployment Assistance: 1) Extends Pandemic Unemployment Assistance (PUA) to March 14, 2021 and allows individuals receiving benefits as of March 14, 2021 to continue through April 5, 2021, as long as the individual has not reached the maximum number of weeks; 2) Increases the number of weeks of benefits an individual may claim from 39 to 50; 3) Provides for appeals to be at the state level; 4) Provides states authority to waive overpayments made without fault on the part of the individual or when such repayment would violate equity and good conscience; 5) Provides a transition rule for certain individuals transitioning between PUA and the PEUC program; and 6) Limits payment of retroactive PUA benefits to weeks of unemployment after December 1, 2020.
- Requirement to Substantiate Employment or Self-Employment and Wages Earned or Paid to Confirm Eligibility for Pandemic Unemployment Assistance: 1) Effective January 31, 2021, requires new applicants for PUA to submit documentation to substantiate employment or self-employment within 21 days and provides for such deadline to be extended when an individual has shown good cause; and 2) Requires individuals receiving PUA as of January 31, 2021 to submit documentation to substantiate employment or self-employment within 90 days.
- Requirement for States to Verify Identity of Applicants for Pandemic Unemployment Assistance: 1) Requires states to have procedures in place to verify or validate the identity of PUA applicants, and for timely payment of benefits; and 2) Clarifies that expenses to implement such procedures qualify as an administrative cost and may be reimbursed as part of PUA operation.
- Return to Work Reporting for CARES Act Agreements: Effective 30 days after enactment, states are required to have methods in place to address situations when claimants of unemployment compensation refuse to return to work or refuse to accept an offer of suitable work without good cause including: 1) A reporting method for employers to notify the state when an individual refuses employment; and 2) A plain language notice to claimants about state return to work laws, rights to refuse to return to work or to refuse suitable work and information on contesting a denial of a claim, as well as what constitutes suitable work, including a claimant’s right to refuse work that poses a risk to the claimant’s health and safety.
- Extension of Temporary Financing of Short-Time Compensation Payments in States with Programs in Law: Extends through March 14, 2021 the CARES Act provision which provided temporary 100% federal financing for Short-Time Compensation (“work-sharing”) programs which are established in state law.
- Extension of Temporary Financing of Short-Time Compensation Agreements for States Without Programs in Law: Extends through March 14, 2021 the CARES Act provision which provided a 50% subsidy to non-statutory, temporary state Short-Time Compensation programs.
- Extension of Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week: Extends through March 14, 2021 the CARES Act provision which reimbursed states for the cost of waiving the “waiting week” for regular unemployment compensation. The reimbursement percentage for weeks ending after December 26, 2020 is set at 50%.
There is certainly much (much!) more to come on this. We know that federal and state legislatures are continuing to seek creative ways to address the on-going crisis. Some of the provisions enacted to date make it easier for claimants to obtain benefits while other provisions attempt to mitigate some of the financial hardship expected on employers in 2021 and beyond.
The bottom lime though is that, in the end, someone has to pay for all of this. In most cases, we can probably expect increases in state unemployment tax rates and/or the taxable wage rate. Some of the potential increase in SUI tax costs will be felt in 2021 and some will take another year or two to fully hit.
More to come on this topic.