Unemployment Compensation Benefits and the COVID-19 Pandemic

There are a lot of questions about unemployment compensation benefits in this new normal as businesses continue to contemplate closings, furloughs, and layoffs related to the COVID-19 pandemic. Generally speaking, workers who are totally or partially unemployed related to COVID-19 have two potential sources for accessing unemployment benefits. The first is their individual State unemployment program. The second is through the federal government via the CARES Act which passed on March 27, 2020 and creates three temporary unemployment assistance programs to supplement state unemployment benefits and, in some cases, to provide unemployment benefits to person who are not eligible for State unemployment benefits. The following summarizes some of the major points to consider in determining your company’s unemployment compensation strategy in order to maximize the probability that eligible employees will receive benefits and to ensure that your business takes advantage of all available tax credits and other tax protections:

State Unemployment Compensation Programs:

Because unemployment eligibility requirements and rules vary among States, employers are advised to check with the State program in each State in which they operate for up-to-the-minute guidance. However, in general a couple of things are fairly universal across States:

    • Most States have waived the initial waiting period. For example, in Texas, an individual typically cannot receive benefits for the first 7 days of unemployment. That requirement has been immediately and temporarily waived.
    • Most States have temporarily waived the work search requirements, meaning claimants will not be required to demonstrate that they are actively searching for work while this waiver is in effect.
    • The existing eligibility criteria still apply. As a general rule, in order to receive unemployment benefits, a claimant must be totally or partially unemployed through no fault of his/her own in order to receive benefits. Notably, we are not seeing lots of changes in the rules regarding medical ineligibility. For example, in Texas, a claimant must still be medically able to work (in some field) in order to receive benefits.
    • Workers who are receiving full paid leave benefits (including under the new FFCRA) while on temporary layoff or furlough typically do not qualify for unemployment under State programs. If the leave benefits being paid do not cover the employee’s full salary, the individual may still be entitled to partial unemployment benefits but the benefit amount will be offset (in whole or in part) by any pay received from the employer.  For example, in Texas, an employee is entitled to partial unemployment benefits if other wages (including paid leave) are more than 25% but less than 125% of the weekly benefit for which the employee qualifies. Once paid leave benefits are exhausted, however, the employee may apply for unemployment.
    • Employers should brush up on the chargeback rules. For example, if a business shuts down due to a closure order from a governmental entity, Section 204.022(a)(1-2) of the Texas Labor Code may allow an employer to ask for chargeback protection. The TWC has advised that “[i]f that were to happen, you should include a copy of the shutdown order with your response to the unemployment claim and argue that the closure was mandated by a local or state order.” The Texas Workforce Commission also recently issued separate guidance stating that “[o]n Friday, March 13, 2020, Governor Greg Abbott declared a disaster relating to the pandemic. Therefore, employer tax accounts may be protected from chargeback.”  This release signals possible relief for employers.

Temporary Federal Unemployment Compensation Programs and Payroll Tax Credits:

    • The CARES Act authorizes three types of federal unemployment benefits: (i) Pandemic Unemployment Compensation (PUC), (ii) Pandemic Emergency Unemployment Compensation (PEUC), and (iii) Pandemic Unemployment Assistance (PUA).
    • PUC benefits will be in effect through July 31, 2020 and provide an additional $600 per week in compensation to all regular (State) unemployment and PUA claimants. Employees will have to file for and qualify for benefits under these programs to qualify for this additional payment.
    • PEUC benefits include an additional 13 weeks of State unemployment compensation benefits. These benefits will become available after someone exhausts all their regular State unemployment compensation benefits. To receive PEUC benefits, workers must be able to work, available to work, and actively engaged in searching for work.
    • PUA benefits provide emergency unemployment assistance to workers who are not traditionally eligible to receive State unemployment benefits. Examples include self-employed persons, independent contractors, those with limited work/payroll history, and possibly others. Up to 39 weeks of PUA benefits are available to qualifying workers. The program will expire on December 31, 2020.
      • Eligible. o qualify for PUA benefits, applicants will have to self-certify that they are able and available to work but are unemployed or partially unemployed due to any of the following:

(i) has been diagnosed with COVID-19 or is experiencing symptoms and seeking a medical diagnosis;

(ii) a member of the individual’s household has been diagnosed with COVID-19;

(iii) the individual is providing care for a family or household member who has been diagnosed with COVID-19;

(iv) the individual is the primary caregiver for a child or other person in the household who is unable to attend school or another facility as a direct result of COVID-19;

(v) the individual is unable to reach the place of employment because of a quarantine imposed as a direct result of COVID-19;

(vi) the individual is unable to work because a healthcare provider has advised the individual to self-quarantine due to COVID-19 concerns;

(vii) the individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of COVID-19;

(viii) the individual has become the breadwinner or major support for a household because the head of household has died as a direct result of COVID-19;

(ix) the individual has to quit their job as a result of COVID-19; or

(x) the individual’s place of employment is closed as a direct result of COVID-19.

      • Ineligible. Workers who are eligible for unemployment compensation benefits under State law will not be eligible to receive PUA benefits. In addition, workers are not eligible for PUA benefits if they can either telework with pay or are receiving paid sick days or paid leave.
    • Employees should apply for federal unemployment compensation benefits through their State unemployment office. For example, the State of Texas advises that if an employee has previously applied for and been denied unemployment for lack of work history, the employee will be notified if they subsequently qualify for benefits under the CARES Act.
    • The CARES Act includes a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (i) operations were fully or partially suspended due to a COVID-19 related shutdown order, or (ii) gross receipts declined by more than 50% when compared to the same quarter in the prior year. For employers with more than 100 employees, the credit is based on qualified wages paid to employees when they are not providing services due to COVID-19 related circumstances. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

The Bottom Line for Employers:

This is getting complicated! Employers should advise employees to apply for and check with their State unemployment insurance programs to determine if they are eligible for unemployment compensation benefits. Employers should also check with their accountants or payroll vendors about any available payroll tax credits. Finally, employers should follow up with counsel to determine if they are eligible for protection from chargeback in the States in which they operate.