How Does Unemployment Insurance Work? A Guide for C-Suite Executives

Over the last year, unemployment insurance has become very important to Americans who were thrown out of work as the economy took a nosedive in response to the coronavirus pandemic.

Even companies that had historically low rates of unemployment were forced to deal with the reality of massive layoffs because various segments of the national economy had shut down.

Then too, supply chains were disrupted all over the country, and this added to the unemployment crisis. In 2021, it is hoped that the economy will begin to recover, as more businesses are able to open up again.

However, that will likely be a slow process, and it certainly won’t happen in a week or even a month. In the meantime, it may be wise to update yourself on just how unemployment insurance works, and how it impacts both you the employer and your employees.

The Federal/State Unemployment Insurance Program 

This program was signed into federal law in 1935 and was designed to replace at least some portion of the wages that an employee was earning before he or she was laid off.

The program requires that the person must be unemployed through no fault of their own, eligible to work, and actively seeking gainful employment during the layoff period.

Each state has its own policy regarding unemployment insurance benefits, but most states provide up to 26 weeks (one half-year) of weekly benefits to employees who have been laid off from work.

These 26 weeks are considered the base period and can be extended in specific instances. In most cases, the reimbursement through unemployment insurance (UI) covers about half of what an employee was earning while still working.

Most major layoffs occur during general downturns of the economy, so providing laid-off workers with a portion of their wages acts as a stimulus to the economy and helps to keep commerce going (relatively) strong.

Who Pays for Unemployment Insurance?

business finances

In ordinary times, unemployment insurance is paid for by a tax that is levied on employers by the specific state they operate in and by the Federal Unemployment Tax Act (FUTA). This amounts to 6% of the first $7,000 earned by any employee.

State spending on unemployment insurance is exempt from balanced budget rules, and states are allowed to take loans out from the Federal Treasury in the event that their own reserves become exhausted.

However, any state borrowing from the Treasury is obliged to repay that sum within three years, or the federal government will automatically increase taxes on those companies until the debt has been repaid.

The federal government does not impose standards on how much money laid-off workers should be entitled to, and that leaves a broad range for states to interpret and make their own determination on reimbursements.

All states are allowed to impose their own level of unemployment tax rates on employers, as well as the amount of reimbursement, and the duration of benefits supplied.

States are also free to establish their own eligibility requirements, for instance, the period of time that someone must be employed prior to being laid off.

Recommended Read How Pandemic Unemployment Is Impacting Business Owners

Eligibility for unemployment insurance benefits

In ordinary times, the majority of unemployed workers do not receive UI benefits. This is because unemployment insurance does not cover situations where a person is looking for their very first job, nor does it cover individuals who voluntarily leave their jobs.

It also does not cover people who intend to re-enter the workforce after having voluntarily left it. In addition, students, self-employed workers, undocumented workers, and gig workers are not eligible to receive benefits under current guidelines.

Depending on the state, workers are required to have been gainfully employed for a minimum amount of time prior to being laid off.

For instance, if your state requires that people be employed for at least six months prior to a layoff, and a person has only worked for three months, they would not be eligible for unemployment benefits.

Furthermore, many states also have minimum requirements for wages earned prior to a layoff, so if the threshold in your state is $10,000, and an employee only earned $5,000 before being laid off, they would again not be eligible for benefits.

This system operates decidedly against low-wage earners because they are the least likely to earn enough to meet the earnings threshold, yet they are the most likely to be laid off.

During the Great Depression, only about 25% of low-wage-earners were actually eligible for unemployment benefits, which meant most had absolutely no income at all.

Recommended Read What Should Employers Do If They Receive False Unemployment Claims?

Improvements to the unemployment benefits system

improvements vector

The extraordinarily high numbers of unemployed workers which the country has seen since the invasion of the coronavirus have pointed out some very obvious deficiencies in the system.

For instance, in the immediate aftermath of COVID-19 early last year, the system was completely swamped with unemployment claims for benefits, and it bogged down the entire system.

Most applicants were paid very late, and in the meantime, they had no income to support themselves.

Only around half of unemployment claims filed in March of last year were paid by the middle of May, and that left millions of Americans with no money to help themselves or their families.

This created hardships all around the country, and it became apparent that an upgrade to the processing system was sorely needed.

It is likely that this will be addressed at the earliest opportunity, and hopefully, that will be before a similar avalanche of claims inundates state processing centers. Another change that has growing support is in the area of eligibility requirements.

There were huge numbers of undocumented workers and individuals seeking their first jobs after graduating from high school or college, who were not eligible to receive benefits over the past year.

While this might be a difficult modification to enact, it seems likely that some tweaking of the eligibility rules might be made to provide at least some level of assistance to individuals falling into these categories.

One last change that might be enacted by the federal government is to relax the current requirement on states to repay money borrowed from the Treasury within three years.

In practice, this has served to raise the burden on employers and hinder the recovery. If this requirement was less stringent, it seems likely that the economy would make a faster recovery, and that there would be less stress on employers.

Manage your unemployment claims with help from Unemployment Tracker!

For mid-to-large-sized companies, handling all the unemployment claims they receive, especially in the middle of a pandemic can be a huge undertaking. Not to mention all the false claims that employers receive from people trying to take advantage of UI benefits.

Our unemployment tracking software provides you a cost-effective means of managing your unemployment claims in-house. Additionally, we also offer outsourced unemployment management services for those who don’t have the manpower to handle it themselves.


Take a look at our unemployment management services!


Take a look at our unemployment tracking software solutions!

How Pandemic Unemployment Is Impacting Business Owners

As the global pandemic approaches the one-year mark, there is no question that it has had a major impact on business owners all over the United States. It has even forced some businesses to close their doors altogether.

Due to restrictions centered around gatherings, in-person visits have diminished, opening up the way for online commerce instead.

Many business owners have been forced to lay off employees because the volume of business they once enjoyed has declined, and they can no longer justify having those workers on hand.

Here are some of the other significant impacts that unemployment is having on business owners as a result of the COVID-19 pandemic.

How Pandemic Unemployment Impacts Business Owners 

When business begins to taper off, as it has for many owners due to COVID-19, it becomes a necessity to let some employees go. 

There’s not really any action required on your part aside from responding to the claim that will be made to your state for extended benefits.

The money that you are required to pay for unemployment taxes then becomes the source used by the state to provide unemployment benefits to those individuals filing claims.

In the event new layoffs result in an unemployment claim, the state will contact you to verify the details of employment. When a former employee files for unemployment benefits, you are required to respond to their claim notice, but you also have the option of contesting it.


Employees who are fired for just cause are typically not eligible for regular unemployment benefits, since the program was set up to assist workers who were laid off through no fault of their own or are unable to work due to reasons outside of their control.

Anyone who is terminated for violation of company policy, poor performance, or for any kind of misconduct will most likely not qualify for regular benefits.

In this scenario, you need to provide evidence that the employee violated company policy or provide some proof of misconduct on their part.

Once this is done, the state will make a determination on whether or not the employee should receive benefits.

Employees, however, have experienced a significant windfall, as they are now receiving an extra $600 per week on top of the standard weekly benefit amount that normally would have been awarded to them.

Recommended Read: Know When and How to Protest Unemployment Claims

The CARES Act 

Prior to the passage of the CARES Act (Coronavirus Aid, Relief, and Economic Security), it was not possible for business owners to collect unemployment for themselves if they fell into any of the following camps.

  • They were self-employed
  • They were a gig worker
  • They were an independent contractor

That was changed when the Act when into effect, and the business owners that were hit the hardest finally became eligible for regular unemployment benefits.

For owners who were prevented from earning a living during the COVID-19 pandemic, at least some relief was made available.

The only individuals not eligible for relief from this stimulus package are those who are still able to work from home or those who closed their doors for reasons other than the coronavirus.

Most self-employed individuals who were put out of business by the pandemic were able to obtain relief through the CARES Act.

Resources Available to Business Owners

Many businesses and business owners have found themselves struggling with the implementation of government restrictions and social distancing requirements brought on as a result of the COVID-19 pandemic.

This has given rise to a number of resources that are intended to lessen the impact of coronavirus and to help business owners recover from it.

Pandemic Unemployment Assistance

One of the latest programs to be put into effect is called the Pandemic Unemployment Assistance (PUA) program, and it went into effect during the latter part of 2020.


Under this program, individuals who were previously not eligible for regular unemployment benefits are able to qualify for PUA are finally able to receive the payments that others have already been awarded.

Recipients will be entitled to as many as 39 weeks of benefits, and they can receive PUA payments retroactively, dating back to January of 2020.

This program is similar to unemployment in that it’s administered by individual states, so claimants are obliged to submit their PUA applications through their state channels.

In addition to the PUA program, business owners received economic impact payments in 2020 which that intended to help taxpayers survive the hardships imposed by the coronavirus.

Single taxpayers received $1,200, couples received $2,400, and couples were paid $500 for each dependent child in their custody.

Families First Coronovirus Response Act

A measure called the Families First Coronavirus Response Act was also enacted to reimburse business owners that employed fewer than 500 employees.

Its intent was to ensure that workers would not have to choose between staying employed and complying with safe behaviors during coronavirus.

It also reimbursed the businesses where these employees worked to relieve some of the pressure off them as well.

The Small Business Association Loan Program

Other guidelines were issued by the federal government with regard to programs already in place. For instance, the Small Business Association (SBA) loan program.

The Economic Injury Disaster Loan was made available to businesses that have suffered serious economic damage as a result of a federally declared disaster.

The SBA also initiated the Paycheck Protection Program (PPP) last year which was intended to help businesses keep their employees working and avoid laying them off.


By forgiving loans, it sought to help employers keep workers on their payroll since it would relieve the pressure of having to make loan payments, thus freeing up capital that could be used for payroll.

Applying for assistance through the PPP was made simple, and it could be carried out through any SBA 7(a) outlet where applications were normally submitted, as well as any federal credit union.

Another resource available to business owners during the time of the pandemic is the SBA’s Local Assistance Directory, which provides locations of local offices where assistance may be obtained.

The federal government is aware of the stress that the pandemic has placed on the shoulders of small business owners and has reacted as quickly as possible to provide help in many different forms.

It is worth your while to make use of the loans and programs described above and to educate yourself about as many other possibilities as possible. Surviving the pandemic as a business owner will prove to be difficult, but you won’t have to do it all on your own.

Need Help Managing Your Unemployment Claims?

Have you been hit hard by unemployment claims during the COVID-19 pandemic?

Despite the fact that you have probably had justified cause for laying off or firing your employees, you may still be getting hammered by unemployment claims, especially if you are a mid to large-sized business.

Trying to handle all of these unemployment claims and respond to them within the allotted time can put an enormous amount of stress on your HR department.

Unemployment Tracker can help you manage your unemployment claims, relieve some of the burdens off your shoulders, and help you contest any claims that you believe were filed without proper justification.

The COVID-19 pandemic has already proved to be a difficult time, so let us help relieve the burden of unemployment claims off your shoulders.

Take a look at our full range of unemployment management solutions!

Know When and How to Protest Unemployment Claims

Unemployment compensation is typically awarded to individuals who have lost their jobs through no fault of their own. It is designed to provide temporary income to those people while they search for a new job. However, as an employer, it is your right to protest unemployment claims. If you believe your former employee is not a candidate for unemployment, this guide will help you contest it.

Key Takeaways

  • If one of your former employees is filing a claim, and you believe they don’t meet the criteria for benefits, it is in your best interest to protest it as soon as possible.
  • If you fail to protest the claim, you will have to pay the employee unemployment compensation. Unemployment claims will also raise your tax rates.
  • Filing a protest does not mean you are off the hook, but it initiates the legal process of contesting the claim.
  • After filing a protest, it is crucial that you gather the proper documentation needed to effectively combat the unemployment claim.
  • Employees who quit of their own volition or were fired due to wilful misconduct are not eligible to receive unemployment benefits.
  • The more unemployment claims you have, the more opportunities for errors there are. This can be especially difficult for larger employers.
  • Unemployment Tracker can help you manage your claims and effectively protest them!

The Initial Process of Protesting an Unemployment Claim


If you receive a notice that a former employee has filed for unemployment benefits and you think the claimant should be disqualified from receiving benefits, you can file a protest. The deadline for you to file the protest will be present on the notice.

If you file a late or incomplete response, you will forgo your right to protest the claim. You may also be fined, as well. It is crucial that you file the protest correctly and in a timely fashion. The process of the unemployment claim can be broken down into the following steps:

1. Receiving Notification of the Claim

When one of your former employees files an unemployment benefits claim, you will receive a notification. The information will include a questionnaire asking for additional details from the employer.

This will help the state and employment commission determine the eligibility of unemployment income benefits. This questionnaire is sometimes referred to as a separation report.

2. Verifying the Claim Details

You will need to check if the individual was actually employed by your business. However, this does not include temporary staff or independent contractors. You will need to verify all information on the report, such as dates of employment and wages. You will also need to provide the details surrounding the event that resulted in the claim. Make sure that you report all of this information to the unemployment officer.

Deciding to Protest the Unemployment Claim


If you determine that the person filing the unemployment claim should not be eligible to receive benefits, then it is in your best interest to file a protest. If you decide not to protest the claim, you will have to pay the employee compensation, and it will also raise your tax rates.

Keep in mind that the unemployment commission will likely rule in the employee’s favor if their work hours were restricted or they were fired through no fault of their own.

An employee does not have a right to unemployment assistance if any of the following circumstances apply.

The Employee Left Their Job Voluntarily

If the employee indicated an intention to quit or did not show up when they were scheduled to work, these aspects need to be documented. In addition, if they gave a formal notice, this disqualifies them from receiving unemployment benefits.

The Employee Engaged in Wilful Misconduct

Wilful misconduct means that the employee failed to meet the normal standards of behavior. This includes being intoxicated, falsifying information, sleeping on the job, or stealing. There are also other examples, such as failure to follow instructions, excessive absences, or an intentional violation of the company’s rules and policies.

What to Do if You Decide to Protest

The most important part of the process is gathering the appropriate documentation. This will be used as evidence to substantiate your case. This documentation should include the following.

  • Proof of attendance.
  • A letter from the employee if they requested a reduction in work hours.
  • A resignation letter from the employee.
  • Documents relating to any disciplinary actions that resulted in a termination.
  • Additional documentation with regards to the event leading to termination.

Upon gathering all the relevant documentation, copies should be sent to the unemployment officer that is conducting the investigation. It is vital to respond on time to the state agency’s requests for information and provide this separation documentation.

What Happens Next?

Once the proper documentation has been submitted to the unemployment commission, it is up to them to make a decision. This is known as the determination, and it could take a while for the commission to respond back with their determination.

If the commission rules in your favor, then the unemployment claim is rendered invalid, and you will not have to suffer the consequences. However, if the determination has sided in favor of the claimant, you will be given instructions on how to appeal this.

The information will explain clearly how and why they came to this determination, and it is up to you to decide if it is relevant enough to appeal the process once again. The number of times you can appeal varies from state to state.

If you decide to appeal the determination, a hearing may need to be held where the case will be reviewed again. Upon the conclusion of this hearing, the commission will make a determination once again.

Manage Your Unemployment Claims with Help from Unemployment Tracker

As you can see, dealing with all of the steps to protest and keep track of unemployment claim can be a headache for any organization. It can be frustrating and time-consuming to gather the information needed to protest an unemployment claim. It is always in your best interest to appeal any unwarranted claims, as you may have to pay a higher tax rate.

If you are looking for a solution that can help you manage your unemployment insurance claims and make sure you meet deadlines, Unemployment Tracker can help you.

From our easy to use software solution for internal teams to Unemployment Tracker Complete that provides you with a dedicated team of experts who will take the whole process off your plate, we are here to help. If you are overwhelmed by unemployment claims and aren’t sure where to turn, reach out to us today or click below to take our free assessment.

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