Unemployment Compensation Definition Requirements and Example

Unemployment Compensation Definition Requirements and Example

Unemployment Compensation: Definition, Requirements, and Example

What Is Unemployment Compensation?

Unemployment compensation is paid to unemployed workers who have lost their jobs due to layoffs or retrenchment. It provides a source of income until they find employment. To be eligible, specific criteria must be satisfied, such as having worked for a minimum period and actively looking for a job.

Unemployment compensation, also known as "unemployment benefits" or "unemployment insurance," is generally provided by an unemployment check or direct deposit. It offers partial income replacement for a defined length of time or until the worker finds employment.

Key Takeaways

Understanding Unemployment Compensation

Unemployment compensation is paid by developed nations and some developing economies. In the United States, it is jointly managed by the federal government and each individual state government. Benefits are based on a percentage of a worker’s average pay over a recent 52-week period, and their calculation can vary by state.

Benefits are generally paid by state governments, funded largely by payroll taxes paid by employers. Most states provide benefits for 26 weeks, though this varies and can range from 12 to 30 weeks. Extensions are possible during periods of high unemployment.

Unemployment Compensation Requirements

Both the federal government and individual states manage unemployment insurance in the United States.

Requirements vary by state in terms of how benefits are determined. In New York, for example, eligibility requires having worked and been paid wages in two calendar quarters, earning at least $2,600 in one calendar quarter, and total wages paid must be at least 1.5 times the amount paid in the high quarter. The minimum benefit is $104 per week, and the maximum benefit is $504 per week.

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New York and many other states waived the seven-day waiting period for benefits for people who are out of work due to coronavirus (COVID-19) closures or quarantines.

COVID-19-Related Unemployment Programs

On March 27, 2020, President Trump signed into law a $2 trillion coronavirus emergency stimulus package called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It temporarily expanded unemployment insurance benefits through three initiatives:

– The Pandemic Unemployment Assistance program

– The Federal Pandemic Unemployment Compensation program

– The Pandemic Emergency Unemployment Compensation program

Here is a quick summary of how they compare:

History of Unemployment Compensation

The first unemployment compensation system was introduced in the United Kingdom with the National Insurance Act of 1911. It aimed to counteract the increasing influence of the Labour Party among the working-class population.

The British scheme provided a contributory system of insurance against illness and unemployment for wage earners. Those earning non-wage income had to rely on other sources of support. By 1913, about 2.5 million people were insured under the British scheme.

In the United States, unemployment compensation began at the state level with Wisconsin enacting it in 1932 during the Great Depression. In 1935, President Franklin D. Roosevelt signed the Social Security Act, establishing it nationwide.

Special Considerations

In Canada, the system is called Employment Insurance (EI) and is funded by premiums paid by both employers and employees. Canada’s first national unemployment system was established in 1940 in response to the effects of the Great Depression.

The law was expanded and liberalized in 1971 and finally replaced in 1996 by the Employment Insurance Act, which changed the program’s name to emphasize its focus on promoting employment rather than supporting unemployment.

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