Unemployment Insurance: Looking Back to Look Forward

October 5, 2021

Unemployment Insurance: Looking Back to Look Forward

COVID-19 has brought many changes and challenges to our everyday lives as individuals, employees, and employers. In order to move forward, it is important to understand how the unemployment system developed and responded during other times of crisis. 

Even though several states proposed unemployment laws as early as 1916, it wasn’t until the Social Security Act was passed in 1935 that mechanisms were established to help unemployed workers to replenish their lost income. The law required states to establish and manage State Unemployment Insurance Trust Funds that are financed through employer payroll taxes, also known as State Unemployment Tax Assessment (SUTA). States would now pay Unemployment Insurance (UI) and unemployment benefits to individuals that had lost their job through no fault of their own. The way these UI Trust Funds receive and distribute funds, the annual SUTA amounts employers pay, and the benefits awarded to individuals are all determined by each state. It is only through Federal Acts or Law changes that the Federal Government can affect change on UI Laws and Trust Funds. There have been several of these acts since the Great Depression, including: 

– The Temporary Unemployment Compensation Act of 1958:  created State Extended Benefits providing additional benefits over the standard weeks at times of high unemployment. 

– The Middle-Class Tax Relief and Job Creation Act of 2012:  established that individuals can only become eligible for benefits if they are currently seeking work, are able to work, and are available to accept any reasonable job offer.

Pre-COVID-19, employers could expect a certain amount of predictability within their state UI systems. I.e, unemployment benefits were typically only awarded to individuals who lost their job through no fault of their own and they had the ability to to protest claims in which they disagreed with the former employees’ eligibility to receive benefits. The shutdowns created chaos for UI systems with initial claims filed nationally reaching 77.5 million in a one-year period from March 21, 2020 through March 20, 2021. This was a huge increase from the 50.9 million initial claims filed during two years of the “Great Recession” from December 1, 2007 through November 28, 2009 (source www.doleta.gov). In addition to the delays this unprecedented volume of claims caused, employers were faced with states eliminating waiting weeks, work search requirements, ability and availability to work requirements, and the need for an individual to have become unemployed through no fault of their own. This all but eliminated the consistency employers had come to expect.   

Historically, most of the Acts that have impacted unemployment were driven by severe economic downturns or recessions. The economic impact of COVID-19 was no different with Congress providing safety nets for both businesses and individuals, resulting in the Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020 and the American Rescue Plan Act (ARPA) of 2021. The sections of the CARES Act impacting unemployment provided additional benefit weeks, benefits to those that would normally not qualify (gig workers and self-employed), and, for the first time ever, additional benefits over and above state awarded benefit amounts. Initially, individuals received an additional $600 per week through the CARES Act. The additional weekly amount was reduced to $300 per week through American Rescue Plan Act (expired September 5th, 2021). 

Although UI Trust Funds and the employers paying SUTA are not directly liable for the additional benefits, they will still see the lasting impact of COVID-19 related closures. State Funds have been depleted and, in many cases, decimated by the unprecedented amount claims in such a short period of time. The historic number of individuals fully exhausting their standard unemployment benefits combined with the additional funds has resulted in most recipients at full wage replacement or receiving an income boost as benefits exceeded prior earnings. Employers paying SUTA can expect to see their taxes rise as states rebuild their Trust Funds to pre-COVID levels. Reimbursing (self-insured) employers’ concern will shift to secondary claims filed by the long term unemployed.   

As ARPA provisions come to an end, many employers are hopeful they will no longer compete with enhanced unemployment benefits to fill available positions. This coupled with an economic rebound are reasons to feel confident for the future, but there are approaching headwinds for employers. Reimbursing employers will start to see 100% claims liability as they did prior to COVID-19. All employers will face potential of higher costs with the proposed changes introduced through the Senate Finance Committee, Senator Ron Wyden, and Senator Michael F Bennet. (www.finance.senate.gov). A few of the proposed changes to the current UI System would require all States to offer at least 26 weeks of unemployment, thus changing the tiered systems found in several states, including Florida and North Carolina. It would also look to require a state to implement 75% wage replacement for all unemployed workers, cover part-time workers that quit their jobs with good cause, and pay workers for their first week of unemployment, “the waiting-week”. Again, such changes would impact benefit amounts that will eventually be passed on to the employers through SUTA or higher costs for reimbursing employers. 

As we move forward to 2022 and beyond, we remain hopeful that things get back to some semblance of normal. For those employers paying SUTA, be mindful that with recovery will come the need to prepare for rising costs as the state funds rebuild to pre-COVID levels. For reimbursing employers, secondary claims as well as the federal administration’s desire to drastically expand unemployment to near a full wage replacement program will be the two largest items to monitor. In doing so we best prepare for the future.


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Life is certainly busy these days but having business partners like First Nonprofit has made some of the process hassle free. We have worked with this team for years. When we changed payroll systems, they outlined every step. I think this team is terrific and I know they get the job done! Thank you, Cruz, to all the team at FNP.

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Chicago Children’s Theatre, Chicago, IL

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