Unemployment Insurance Benefits: A COVID-19 Update for California Employers
As a result of the COVID-19 pandemic, more than 16 million Americans have filed for unemployment in the last three weeks—approximately 10% of the domestic workforce. This unprecedented number has challenged our unemployment insurance system. This article discusses how unemployment agencies will administer benefits provided under various federal and state laws recently enacted in response to COVID-19.
How Does Unemployment Insurance Work and Who Oversees It?
The unemployment insurance program provides financial benefits for workers who are unemployed through no fault of their own. The basic unemployment insurance program is administered by the states, and overseen by the U.S. Department of Labor. The basic program in most states provides up to 26 weeks of benefits to unemployed workers, replacing about half of their previous wages, on average. States provide most of the funding to workers based on employment taxes collected from employers in their state. The federal government pays some of the administrative costs for the unemployment insurance program. Although states are subject to a few federal requirements, they are generally able to set their own eligibility criteria and benefit levels. Accordingly, the rules vary state by state.
What New Laws Impact the Unemployment Insurance Program?
In response to COVID-19, Congress recently enacted the Families First Coronavirus Response Act (“FFCRA”) and Coronavirus, Aid, Relief, and Economic Security Act (“CARES”) as a protective measure against this crisis, including vital relief to both employers and employees.
Families First Coronavirus Response Act (“FFCRA”) & Unemployment Claims
On March 18, 2020, the FFCRA was signed into law creating two new emergency paid leave requirements in response to the COVID-19 global pandemic. Our blog post summarizing the key details of the FFCRA’s leave provisions can be found here.
The FFCRA does not cover those who lose work simply due to business interruption, leaving these affected employees to file claims with the unemployment insurance programs in the states where they reside.
Among other provisions, the FFCRA includes the Emergency Unemployment Insurance Stabilization and Access Act of 2020, which allocates $1 billion in emergency state grants to assist with processing and paying unemployment insurance benefits. Of that amount, $500 million will provide funding for administrative costs, as long as states have met certain requirements to provide eligible workers with access to benefits.
Coronavirus, Aid, Relief, and Economic Security Act (“CARES”) & Unemployment Compensation
On March 27, 2020, the CARES Act was signed into law. The CARES Act, which was summarized in our prior blog here, provides emergency assistance for certain individuals, families and businesses affected by the COVID-19 pandemic through the most expansive economic stimulus package in American history. Among other provisions, the CARES Act temporarily expands unemployment benefits through the creation of several new programs detailed below:
Federal Pandemic Unemployment Compensation (“FPUC”). Under the FPUC provision of the Act, individuals who are eligible for unemployment benefits will receive an extra $600 weekly benefit in addition to the amount the individual otherwise would be entitled to receive under state law for all weeks of unemployment starting from the date of eligibility (or the date states signed an agreement to provide benefits, whichever is later) until July 31, 2020. All states have executed agreements with the U.S. Department of Labor as of March 28, 2020.
Pandemic Unemployment Emergency Compensation (“PUEC”). The PUEC provision provides for an additional 13 weeks of unemployment benefits for individuals who have exhausted benefits they are otherwise entitled to under state law. Therefore, eligible individuals now may receive unemployment benefits up to a maximum of 39 weeks, whereas previously many states capped regular benefits at 26 weeks. The extended benefits are available through December 31, 2020.
Pandemic Unemployment Assistance (“PUA”). The PUA provision expands coverage to certain workers who traditionally are not eligible for unemployment benefits under state law, such as individuals who are self-employed, independent contractors, have limited work history, or who have exhausted all rights to regular or extended unemployment benefits, among others. This is particularly important for those who work in the gig economy, who work largely as independent contractors and freelancers.
Under the PUA, an eligible individual may collect benefits for a maximum of 39 weeks. Benefit payments under PUA are retroactive, for weeks of unemployment, partial employment, or inability to work due to COVID-19 reasons starting on or after January 27, 2020 and may last until December 31, 2020. Weekly PUA benefits will equal the weekly benefit that the individual otherwise would receive under the applicable state law, plus the additional $600 weekly payment under FPUC (through July 31, 2020).
To be eligible for PUA benefits, individuals must be unemployed, partially unemployed, or unable to work for certain reasons relating to COVID-19, such as where:
An individual has been diagnosed with COVID-19 or is experiencing COVID-19 symptoms and seeking diagnosis;
A member of the individual’s household has been diagnosed with COVID-19;
An individual is caring for a family or household member diagnosed with COVID-19;
An individual is the primary caregiver of a child or household member who is unable to attend school or another facility that is closed due to COVID-19;
An individual is unable to reach their place of employment due to an imposed quarantine or was advised by a medical provider to self-quarantine due to COVID-19;
An individual was scheduled to commence new employment and does not have a job or cannot reach the job as a direct result of COVID-19;
An individual became the breadwinner or major support for a household because the head of the household died from COVID-19;
An individual has to quit a job as a direct result of COVID-19; or
An individual’s place of employment closed as a direct result of COVID-19.
Notably, individuals who can telework for pay, or are receiving paid sick leave or other paid leave benefits, are not eligible to receive PUA benefits.
Short-Time Compensation (“STC”) Programs. STC programs will provide employers with an alternative to layoffs. STC programs will allow employers to apply for state approval to administer a plan that reduces the wages and hours for affected employees, while allowing those employees to receive partial unemployment benefits from the state. Under the CARES Act, the federal government will cover 100% of the unemployment compensation paid under existing state STC programs. The CARES Act also creates incentives for states that have not yet created programs to do so.
California Unemployment and the Employment Development Department (“EDD”)
As discussed above, unemployment benefits are administered through each state’s unemployment compensation program. In California, the Employment Development Department (“EDD”) processes unemployment claims and determines eligibility. The payroll taxes for unemployment insurance is paid entirely by California employers. In California, no deduction is made from the worker’s wages to finance unemployment insurance benefits. It is important that employers understand the unemployment benefits available to employees before they layoff, furlough or reduce hours. For example, given the additional federal relief under CARES, employees that make less than $54,000 annually, may qualify for more pay per week through unemployment benefits than if they work reduced hours.
Typically, the EDD requires applicants to meet three eligibility requirements to collect unemployment benefits in California: (1) the applicants’ past earnings must meet certain minimum thresholds; (2) the applicant must be unemployed without fault; and (3) the applicant must be able, available, and actively seeking work. If approved, the EDD determines the weekly benefit amount based on the applicants’ past earnings, up to a maximum of $450 per week. Applicants can file a claim for benefits online, by phone, by fax, or by mail.
Has California Implemented the Expanded Benefits Provided by the CARE Act?
In the past few weeks, the EDD has seen more than 1.9 million unemployment claims filed—nearly the same amount as all unemployment claims from the 2008 Great Recession.
Given the administrative requirements set forth in an opinion letter by the Department of Labor, it is unclear when the new and expanded federal benefits will be implemented. For now, EDD has issued guidance advising that it has not yet implemented or begun to administer the additional $600 benefit, the new 13-week extension of benefits, or the expansion of coverage to independent contractors provided for under the CARES Act, and that it is still waiting for further guidance from the U.S. Department of Labor on how to administer the nearly 900-page bill.
Are Independent Contractors Able to Claim Unemployment Benefits?
As discussed above, the PUA Program gives states the unprecedented option of extending unemployment compensation to independent contractors and other workers who are ordinarily ineligible for unemployment benefits. For now, EDD has advised that it has not yet established the federal PUA program to expand unemployment benefits to “the self-employed and those who are truly independent contractors” and is still awaiting further guidance from the U.S. Department of Labor.
As a result, unemployment benefits are currently only available to independent contractors who (1) chose to voluntarily contribute to UI Elective Coverage and paid the required contributions to be considered potentially eligible for benefits; (2) had a past employer that made contributions on their behalf over the past 5 to 18 months, or (3) were misclassified as an independent contractor instead of an employee.
“If you are unsure if you are an independent contractor or an employee who could be eligible for benefits, then you are still encouraged to apply for Unemployment Insurance as instructed in our FAQs under the Unemployment Insurance Benefits section.”
This is a clear warning signal for California companies that utilize independent contractors. If an independent contractor files a claim for unemployment and notifies the EDD that it has been misclassified, this may trigger an audit by EDD of the company that allegedly misclassified the contractor in question. Thus, California companies should take care before advising any independent contractors to apply for unemployment benefits before the PUA Program has been implemented by EDD, and to ensure their independent contractor workforce is properly classified.
Can Employees Receive Unemployment Benefits for Reduced Hours?
Unemployment Insurance under California law specifically provides partial wage replacement benefit payments to workers who have their hours reduced through no fault of their own. Thus, even if an employee is still working part-time, the employee may still be eligible for unemployment benefits depending on their earnings and other circumstances as detailed below. Before reducing hours, employers should understand and carefully consider how unemployment benefits impact their employees. Depending on a number of factors, employees may qualify for more money per week if they are furloughed than if they work reduced hours.
Reduced Unemployment Benefits. In California, an individual is considered “unemployed” for the purpose of unemployment benefits during any week in which that individual’s wages (minus $25 or 25% of those wages, whichever is more) is less than he or she would earn as a weekly unemployment benefit. In this scenario, the employee would be eligible for the difference between their wages and what they would have earned as a weekly unemployment benefit.
Partial Unemployment Benefits. If an employee was subjected to a temporary layoff or work reduction, he or she may be eligible for benefits under California’s partial benefit program. This program is for employees whose employers want to retain them, despite a current lack of work. The employer must complete a “Notice of Reduced Earnings” form, and the employee must fill out part of the form. By applying for benefits through this program, an employee does not have to show that he or she is able and available to work and looking for other work.
Work-sharing. Employers may also consider EDD’s Work Sharing Unemployment Insurance Program as a potential alternative to layoffs. This program applies to employers that cut the hours of at least 10% of their workforce (and at least two employees) by at least 10%. These employers can submit a work-sharing plan to the state agency. If the agency approves, it will send certification forms to the employer, which the employer and employee complete for each week of reduced hours, and submit to the agency. For example, instead of laying off 20% of a workforce, an employer could reduce payroll by 20% and unemployment insurance would cover part of the difference in wages to employees. This approach also could help employers by reducing the need to re-hire and re-train employees when business improves. Further details on this program, including qualification requirements) are available here.
As you are aware, things are changing quickly and the aid measures and interpretations described here may change. This article represents our best understanding and interpretation based on where things currently stand as of April 10, 2020.