COVID-19

Unemployment Insurance for Workers Impacted by COVID-19

On March 18, 2020 President Trump signed H.R. 6201, the Families First Coronavirus Response Act, the first federal relief act aimed at mitigating the economic and public health consequences of the coronavirus disease 2019 (COVID-19). 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, 2020, included several additional actions on UI. In August, President Trump authorized the distribution of disaster relief funding to states to provide extra UI benefits. In December, the Coronavirus Response and Relief Supplemental Appropriations Act re-instituted some enhanced UI benefits covering January 1, 2021 through March 14, 2021. On March 11, 2021 President Biden signed H.R. 1319, the American Rescue Plan Act, which extends UI benefit enhancements through September 6. In this post, we summarize the recent federal actions on UI and discuss how these interact with current state programs.

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

Enhanced Weekly Benefits. Under H.R. 748, all UI recipients received 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 were available until July 31, 2020. During September and October 2020, under a FEMA-funded program called “lost wages assistance,” UI recipients received an additional $300 weekly for up to six weeks. In December, 2020, H.R. 133 re-instituted the weekly $300 added benefit for January 1, 2021 to March 14, 2021. On March 11, 2021, H.R. 1319 extended the weekly $300 added benefit through September 6, 2021.

Allows State to Extend Amount of Time Workers Can Receive Weekly Benefits. States may enter into an agreement with the U.S. Department of Labor to extend the amount of time workers can claim UI benefits. H.R. 748 first extended, and later legislation lengthened, the time that workers can claim UI benefits from 26 weeks to up to 99 weeks. (In particular, the recent H.R. 1319 extended the benefit duration by 25 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.

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. H.R. 748 first expanded, and later legislation extended, 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 enhanced benefits described above. Benefits are available for up to 86 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 September 6, 2021.

Provides New UI Administration Funding for EDD. In March 2020, H.R. 6201 made available about $120 million in additional UI administration money for California. This funding was made available to California in two parts. Half was available within 60 days to states following certain best practices in administering UI benefits. The remaining funds were made available to states with increased UI claims. Specifically, funds were made available once quarterly UI claims exceeded the number of claims in the same quarter of the previous year by 10 percent or more. California reached this threshold during the first quarter of 2020. As required under H.R. 6201, in order to receive these additional funds, the state also took action during 2020 to expand access to UI benefits, specifically by (1) temporarily waiving the work search requirement, (2) temporarily waiving the seven-day waiting time, and (3) changing the calculation for the employer experience rating to exclude from the calculation UI claims related to COVID-19.

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 state UI Trust Fund became insolvent during the summer of 2020. One year after the pandemic began, by March, 2021, the state’s outstanding federal UI loan balance reached roughly $19 billion. H.R. 6201 suspended the accrual of interest on these federal loans through the end of 2020. H.R. 133 extended the interest wavier through March 14, 2021. H.R. 1319 further extended the interest waiver through September 6, 2021. As a result, the state’s first interest payment on its outstanding federal UI loans, due September 30, will only cover interest accrued for several weeks and therefore should be minimal. As a point of reference, 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 a total of $1.4 billion in interest on these loans over a period of eight years.

Extension of Payroll Tax Deadline for Employers. On March 22, 2020, President Trump 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.