Understanding How Unemployment Benefits Work

How do your employees collect benefits when laid off? How can your organization manage unemployment insurance costs? Can employees return to work part time and still receive unemployment benefits?

By Jessica C. Moore

As nonprofits face the challenges of laying off employees and wanting to assure that they receive unemployment benefits to care for their families, it is important to understand how unemployment insurance works and how to minimize the cost to the organization. There also may be opportunities for employees returning part time to collect unemployment benefits.

Background:

New Jersey’s unemployment insurance (UI) compensation system was originally established in 1935 to provide temporary partial wage replacement to individuals who lose their jobs through no fault of their own. The UI system operates as a federal-state partnership. The federal government sets broad requirements for its administration and for the states, and also determines the details of eligibility and program operation.

Who is eligible to collect unemployment insurance benefits?

To be eligible for benefits, an individual must have earned the minimum wage for at least 20 hours a week over a period of 20 base weeks or at least 1,000 hours over the course of a year. For 2020, an individual must have earned at least $200 per week for 20 weeks or at least $10,000 during the base year.

How unemployment insurance works for individuals:

Unemployment insurance benefits are meant for people who lose their job “through no fault of their own,” such as an employer’s lack of work or a layoff due to downsizing.

The most important part of unemployment benefits is that the individual must be willing and able to work, be actively seeking employment, and not refuse an offer of suitable work. If they are not willing and able to work or reject employment opportunities, this can impact their weekly benefits!

The ultimate goal is to have individuals gainfully employed and not using unemployment insurance. It is the expectation that individuals will be looking for new employment in the general location, level, and compensation that they previously enjoyed. The longer one remains unemployed, the more willing they must be to expand their work search. They may need to consider offers outside their normal trade or occupation, and to accept work at a lower pay rate in order to remain eligible for benefits.

Currently, because of the COVID-19 crisis, unemployment insurance benefits have been extended to 39 consecutive weeks. Additionally, the federal government is supplementing state unemployment insurance benefits with an additional $600/week per claimant through July.

How unemployment insurance impacts organizations:

Most organizations understand that laying off employees will allow for the former employee to obtain unemployment insurance benefits, but many organizations do not fully understand the impact to the organization.

How it works:

The UI system is financed by employees and employers through tax payments to the Unemployment Insurance Trust Fund. Each year employees pay a flat tax rate that should be automatically deducted from their payroll through normal payroll tax deductions.

Employers pay a variable rate each year depending on the Unemployment Trust Fund reserve ratio (think of this as the state establishing your starting % contribution) and their own Employer reserve ratios (contributions paid minus benefits claimed by former employees, divided by average annual payroll). The bottom line– the more the organization uses the fund (due to approved claims), the higher the unemployment tax rate will be in the future.

In a situation where a former employee files for unemployment insurance, the organization must give information to the state verifying the reason a person is no longer working for the organization. It is very important for the employer to have documentation on the individual’s exit from the company. Organizations should provide those details when the state requests, to ensure only the eligible people are able to use the funding and misuse does not cause additional taxation. Do not ignore these requests just because someone has not worked for you in over a year. The information you provide will contribute to the eligibility of that person, and potentially impact your tax rate!

Partial Unemployment benefits:

As we start to reopen from COVID-19 restrictions in New Jersey, you may want to explore this option as a way to start bringing your employees back to work; allowing them to work some hours, while still giving them the ability to collect partial unemployment and fully support their families.

If an employee was working full time, and the hours were reduced or the employee is coming back to work on a reduced schedule, they may qualify for partial unemployment insurance benefits.

Employees in this situation may not be required to search for work (as the ultimate goal is full time gainful work), but they are required to work all available hours you provide as the employer. To be eligible for partial benefits, the individual cannot work more than 80 percent of the hours normally worked in the job. So, an employee who normally works a 40 hour week may be eligible for partial unemployment benefits if still working 32 hours or less.

Unemployment insurance supports our friends and families during times of income insecurity and loss of employment. Understanding how it works on both the employer and employee side helps benefit us all; protecting the organization’s taxation rate so only eligible claims use funding, ensuring those eligible for benefits have the fund available and using partial benefits to keep the company and the employee moving in the right direction.

To review the Department of Labor and Workforce Development website and for more information on the process, the weekly rate calculator, or the options of Partial Unemployment benefits, please review these links below.

New Jersey has made some adjustments to the benefits due to the impact of COVID-19. To review these modifications, please click this link for more information: