LAO Contact

Chas Alamo

Budget/Policy Analysis
March 23, 2020

COVID-19


Unemployment Insurance For Workers Impacted By COVID-19


Updated March 30, 2020 to reflect the enactment of H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act.

Updated March 25, 2020 to reflect recent state actions taken to accelerate payment of Unemployment Insurance claims.

On Wednesday, March 18, the President signed H.R. 6201, the Families First Coronavirus Response Act, the federal relief act aimed at mitigating the economic and public health consequences of the coronavirus disease 2019 (COVID-19). The H.R. 6201 includes several actions related to unemployment insurance (UI). Follow up legislation, H.R. 748—the Coronavirus Aid, Relief, and Economic Security Act—passed on March 27 included several addition actions on UI. In this post, we summarize the recent federal actions on UI, discuss how these interact with current state programs, and highlight options the Legislature may want to pursue in responding to the ongoing crisis. We are accurate to the best of our ability given the urgent response needed and the rapidly changing situation. We will continuously monitor the situation and provide updates as necessary.

State’s Existing Unemployment Insurance Program. Through the Employment Development Department (EDD), most employees are eligible to receive weekly UI benefits when they become unemployed through no fault of their own and intend to continue looking for new work. The amount of UI benefits a worker receives depends on how much they earned in the period leading up to their unemployment. Benefits are available for up to 26 weeks. To fund the benefits, employers pay a payroll tax on the first $7,000 of employee wages. The payroll tax rate is based on the employers “experience rating,” in which the tax rate is higher for employers who have had many UI claims in the past and lower for employers with fewer claims. In 2019, the state collected $5.9 billion in UI taxes from employers and issued about $5.5 billion in total UI benefits. On average, in 2019, unemployed workers received about $330 per week for 17 weeks. During times of increased unemployment, state funds for unemployment benefits may run out. When this occurs, the state receives federal UI loans to continue paying out benefits. Once the economy recovers, the state and employers repay the federal UI loans.

Key Provisions of Federal COVID-19 Relief

Enhances Weekly Benefits. Under H.R. 748, all UI recipients will receive an additional $600 per week on top of their typical UI benefit. The enhanced benefit is the same for all recipients and does not depend on a worker’s past earnings. These benefits are available until July 31, 2020.

Allows State to Extend Amount of Time Workers Can Receive Weekly Benefits. The
H.R. 748 allows states to enter into an agreement with the U.S. Department of Labor (DOL) to extend the amount of time workers can claim UI benefits from 26 weeks to 39 weeks. The federal government, instead of California employers via payroll taxes, would pay the full cost of these extra weeks of benefits. To be eligible for extra weeks of benefits, workers must demonstrate to EDD that they are actively looking for employment. The extra weeks of benefits would be available until the end of the 2020.

Expands Eligibility for Workers Directly Affected by COVID-19. Self-employed workers—including business owners, independent contractors, and freelancers—generally are not eligible for UI. The H.R. 748 expands eligibility for UI benefits to self-employed workers as long as they are (1) available for work and (2) unable to work as a direct result of COVID-19. Weekly benefits for self-employed workers are calculated the same way they are for other workers, including the $600 enhancement described above. Benefits are available for up to 39 weeks. The eligibility expansion is retroactive to January 27, 2020, meaning self-employed workers can request benefits for weeks of unemployment back to January 27, 2020. The expansion expires at the end of 2020.

Provides New UI Administration Funding for EDD. The H.R. 6201 makes available about $120 million in additional UI administration money to California. This funding would be made available to California in two parts. Half would be made available within 60 days to states that follow certain best practices in administering UI benefits. How the DOL will enforce these administrative standards currently is unclear. We believe the state currently follows these basic administrative standards, though they are not necessarily spelled out in state law. There is a possibility the state will need to take some action to reaffirm these best practices via executive order or, time permitting, legislation.

The remaining funds would be made available to states with increased UI claims. Specifically, funds would be available once quarterly UI claims exceed the number of claims in the same quarter of the previous year by 10 percent or more. Given the preliminary state claims data from early March, we expect that the state will qualify for these funds. Additionally, to receive the second round of funding, the state would need to take actions intended to expand access to UI benefits for workers affected by COVID-19, such as (1) temporarily waiving work search requirement, (2) temporarily waiving the seven-day waiting time, and (3) changing its calculation for the employer experience rating to exclude from the calculation UI claims related to COVID-19. (The Governor has already waived the seven-day waiting time requirement.) Similar to the criteria for the first half of the funding, the state may need to take some additional action to demonstrate its intent to meet these federal requirements. The Governor has already issued an executive order to eliminate the seven-day waiting period.

Increased Federal Funding for Work Sharing Program. Some employers faced with a slowdown in business may look to cutback workers’ hours instead of laying off workers entirely. An existing program in California, known as the Work Sharing Program, allows employers to request for their employees to receive partial UI benefits to help cover the income they lose as a result of reduced work hours. Under H.R. 748, the federal government will pay the full cost of the Work Sharing Program through the end of 2020. H.R. 748 also makes around $10 million available to EDD to pay for administration and promotion of the Work Sharing Program.

Suspends State Payments and Interest on Federal Loans to the UI Trust Fund. During downturns, the state’s UI Trust Fund typically becomes insolvent as benefit payments exceed payroll tax collections. When this occurs, the federal government provides a loan to the state to allow EDD to continue to issue benefits. In general, the state must pay interest on these loans. These interest payments must be made from the state General Fund. The H.R. 6201 suspends the accrual of interest on federal loans through the end of 2020. Given the magnitude of initial unemployment claims received so far, the state UI Trust Fund likely will become insolvent in the coming months, meaning this provision of the Federal Relief Act could reduce state General Fund costs, at least to some degree, related to repaying interest on federal UI loans. During the Great Recession, the state’s federal UI loan balance peaked at $10.3 billion at the end of 2012 and the state General Fund paid about $300 million annually in interest on these loans.

Extension of Payroll Tax Deadline for Employers. On March 22, the President issued a disaster declaration for the COVID-19 outbreak in California. Among other provisions, this disaster declaration allows employers to request a 60-day extension of the deadline to pay their UI payroll taxes for the first quarter of 2020. These tax payments typically are by due April 30. In total, employers owe around $3 billion in the first quarter of UI payroll tax payments.

Expect Delays in Payment of UI Benefits to Workers. Under normal economic conditions, EDD typically issues a worker their first week of benefits within 21 days of receiving a worker’s application about 80 percent of the time. Given the extraordinary number of applications received recently, as well as the expectation that claims will continue to increase over the coming weeks, the Legislature should anticipate that the first week of benefit payments will take much longer than 21 days. Similar delays occurred during the Great Recession. On March 24, the state Labor and Workforce Development Agency directed EDD to begin immediately paying claims for UI benefits prior to making a final eligibility determination. A similar directive was issued during the Great Recession and helped to ease, but not eliminate, payment delays.

Information Technology Limitations Pose Challenges. The information technology system used by EDD to administer UI relies, in large part, on aging and inflexible components. The aging system previously has been cited by the administration as a source of complaints from claimants and delays in processing of claims. The aging system also makes it difficult and time consuming to implement changes to the UI program, such as changes in weekly benefits. Further, some functions of the UI program—such as the Work Sharing Program—still require participants to print and mail a paper application. While the administration currently is in the middle of a multiyear process to update EDD’s UI system, these changes are not expected to be completed this year. The limitations of EDD’s information technology systems likely will present significant challenges for EDD in implementing the recent federal actions.