Unemployment compensation is paid by the state to unemployed workers who have lost their jobs due to layoffs or retrenchment. It is intended to provide a temporary source of income for jobless workers until they can secure new employment. To be eligible for unemployment compensation, specific criteria must be met, such as having worked for a minimum stipulated period and actively seeking a job.
Unemployment compensation, generally provided via an unemployment check or a direct deposit, offers partial income replacement for a designated period or until the worker finds a new job, whichever comes first. Also known as “unemployment benefits” or “unemployment insurance,” this financial assistance is a crucial safety net during difficult times.
Key Takeaways
- Unemployment compensation is a benefit given to individuals who have recently lost their employment through no fault of their own, such as due to layoffs or business closure.
- Unemployment benefits are typically calculated as a percentage of the claimant’s average pay over a recent 52-week period.
- Special pandemic-related benefits ended on September 6, 2021.
- Compensation is often paid via unemployment check or direct deposit.
- Each state sets its own eligibility requirements and rules for unemployment benefits.
Understanding Unemployment Compensation
Unemployment compensation is intended to offer income support to unemployed workers. In the U.S., the system is administered jointly by the federal government and individual state governments. Benefits are based on a percentage of a worker’s average pay over a recent 52-week period, and the calculation varies state by state.
Funded primarily by state and federal payroll taxes paid by employers, most states provide benefits for 26 weeks, although this period can vary from 12 to 30 weeks depending on the state. Extensions are sometimes possible during times of high unemployment.
Unemployment Compensation Requirements
Both the federal government and individual states manage unemployment insurance in the United States, with eligibility requirements differing from state to state. For instance, in New York, eligibility needs include having worked in at least two calendar quarters, having earned at least $2,600 in one quarter, and total wages must be at least 1.5 times the highest quarter earnings. The minimum weekly benefit is $104, and the maximum is $504 per week.
Many states, including New York, waived the seven-day waiting period for benefits for those out of work due to COVID-19 closures or quarantines.
COVID-19-Related Unemployment Programs
Overview of Pandemic Programs
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, temporarily expanded unemployment benefits through three key programs:
- Pandemic Unemployment Assistance (PUA): Extended benefits to the self-employed, freelancers, and independent contractors. Ended on September 6, 2021.
- Federal Pandemic Unemployment Compensation (FPUC): Provided an additional federal benefit of $600 per week (later reduced to $300 per week). Ended on September 6, 2021.
- Pandemic Emergency Unemployment Compensation (PEUC): Extended benefits by an extra 13 weeks after state benefits were exhausted, later expanded by 11 more weeks. Ended on September 6, 2021.
President Joe Biden later extended these benefits through the American Rescue Plan signed on March 11, 2021. This stimulus package extended unemployment benefits from March 14, 2021, to September 6, 2021, with additional extensions for PUA and PEUC.
All pandemic-related unemployment benefits ceased on September 6, 2021.
History of Unemployment Compensation
The first system to offer unemployment compensation was introduced in the United Kingdom under the National Insurance Act of 1911. This act provided insurance against unemployment for British workers, though it was criticized and limited to specific industries.
In the United States, unemployment compensation began at the state level with Wisconsin in 1932 and was established nationwide through the Social Security Act signed by President Franklin D. Roosevelt in 1935. Initially, the law excluded small employers, but this condition has since been relaxed to include almost all employers.
Special Considerations
In Canada, the system is known as Employment Insurance (EI) and is funded by both employers and employees. Established in 1940, the system was expanded in 1971 and renamed in 1996 to promote employment.
Related Terms: Employment Insurance, Great Depression, Pandemic Unemployment Assistance, Federal Pandemic Unemployment Compensation.
References
- Social Security Administration. “How Do I File for Unemployment Insurance?”
- Center on Budget and Policy Priorities. “Policy Basics: How Many Weeks of Unemployment Compensation Are Available?”
- Congress.gov. “H.R. 1319—American Rescue Plan Act”, Page 115.
- U.S. Department of Labor. “Unemployment Insurance Extended Benefits”.
- New York State Department of Labor. “How Your Weekly Unemployment Insurance Benefit Payment Is Calculated”.
- New York State Department of Labor. “File a New Unemployment Insurance Claim”.
- Congress.gov. “H.R. 748—CARES Act”.
- The New York Times. “F.A.Q. on Stimulus, Unemployment and Tax Rebates”.
- Congress.gov. “H.R. 1319—American Rescue Plan Act”, Pages 115-117.
- Congress.gov. “H.R. 1319—American Rescue Plan Act”, Page 117.
- Social Security Administration. “A Summary of Foreign Experience With Unemployment Insurance”.
- SchoolsHistory.org.uk. “National insurance Act 1911”.
- Eligibility.com. “The History of Unemployment Insurance”.
- MapleLeafWeb. “History of Employment Insurance in Canada”.
