How Does Unemployment Work?

Regular unemployment insurance (UI) is a state benefit provided to individuals who are laid off from a job or who see a substantial reduction in work hours. The number of weeks a person can claim unemployment benefits varies by state. In order to qualify for unemployment insurance benefits, a worker must not have been fired or quit voluntarily.

UI was created by federal law, established through a national unemployment insurance program administered by the U.S. Department of Labor (DOL) under the Social Security Act. Unemployment insurance benefits are financed by employers who pay state and federal unemployment taxes.

The minimum and maximum benefit amounts an individual can receive from a state’s UI program per week varies by state. In California, a claimant can receive between $40 and $450 in unemployment compensation on a weekly basis. The claimant’s weekly benefit amount (WBA) depends on the amount of wages they earned in their highest quarter.

States use different wage ranges to determine if a claimant is eligible for UI. In California, the wage range is between $900 and $11,674.01 per quarter.

Eligibility criteria for each state differ. Typically, a state requires an individual to earn enough money during multiple quarters of a base period. A base period is one year; calendar quarters are three-month periods, like January through March or April through June.

In California, an individual must have earned at least $1,300 in the highest quarter of their base period and $900 in the highest quarter and total base period earnings of 1.25 times the high quarter earnings. Two types of base periods are used to establish a claim, a standard base period or an alternate base period. In California, the standard base period is the first four of the last five completed calendar quarters before the initial date of the unemployment claim. When an individual does not have sufficient wages in the standard base period, the state labor department will automatically consider whether they have enough wages using the alternate base period.

The alternate base period is the last four completed calendar quarters before the beginning date of the claim. Other qualifications for UI include being able and available to work, and to be actively seeking work. At the beginning of the COVID-19 pandemic, states suspended the work search requirement, but many states have since reinstated the work search requirement.

An individual who exhausts their regular state-funded unemployment benefits may be eligible to claim extended benefits (EB) when the state’s unemployment rate is high. The minimum and maximum amounts of EB are the same as the minimum and maximum amounts of UI. The number of available weeks of EB depends on the unemployment rate in the state and how long the unemployment rate stays at that percentage.

The maximum number of EB weeks is 20. With a few exceptions, the federal government pays half the costs of EB. Funding for the federal share of EB comes from the Federal Unemployment Tax Act (FUTA) tax.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, provides two types of unemployment benefits to claimants during the COVID-19 pandemic. These unemployment benefit programs initiated by the CARES Act have been extended twice, first through the Consolidated Appropriations Act signed into law in December 2020, and later through the American Rescue Plan Act (ARPA), signed into law in March 2021. ARPA and the unemployment benefits it provided are set to expire on September 4, 2021.

The CARES Act created two new classes of unemployment benefits, Pandemic Emergency Unemployment Compensation (PEUC) and Pandemic Unemployment Assistance (PUA). PEUC is available to former and current employees who have exhausted their UI and EB benefits. As of mid-April 2021, a worker can claim a maximum of 53 weeks of PEUC or until the program expires.

PUA is available to a worker who has exhausted their PEUC benefits. It is also available to self-employed people and independent contractors who typically do not meet the eligibility requirements for their state UI program. As of mid-April 2021, a person can claim a maximum of 79 weeks of PUA or until the program expires. States require an individual to submit proof of income from the prior tax year to qualify for PUA.

The minimum and maximum amounts of PEUC are the same as the minimum and maximum amounts of UI or EB. The minimum amount of PUA must be equal to one-half the average weekly benefit amount in the claimant’s state. For example, in California, that amount is $167. The maximum for PUA benefits is the maximum amount of UI per week. In California, that is $450. The federal government will continue to add $300 each week to an individual’s PUA amount between December 27, 2020 and September 4, 2021.

The Consolidated Appropriations Act created a third type of unemployment benefit in December 2020, Mixed Earners Unemployment Compensation (MEUC). This benefit is available to a worker who earned money through a traditional W-2 job, as well as through self-employment. It provides an additional $100 a week on top of regular UI.

To be eligible for MEUC, a person must have earned at least $5,000 in self-employment income in the most recent tax year prior to their application for regular UI. An individual receiving PUA may not be eligible to receive MEUC.

A claimant should refer to their state department of labor’s FAQ regarding COVID-19 or the department’s guide on returning to work to understand how part-time work can reduce a claimant’s unemployment benefits. States have different formulas for calculating the extent to which part-time wages reduce a claimant’s unemployment benefits. For example, New York allows a claimant to work up to seven days a week without losing full unemployment benefits for that week.

New York requires that the claimant work 30 hours or less and earn $504 or less in gross pay, excluding earnings for self-employment. This hours-based approach reduces benefits in increments.

For example, if an individual engaged in four or fewer hours of work, they will not see any reduction in their weekly benefit rate. If they engaged in five to 10 hours of work, they will be paid 75 percent of their weekly benefit rate. If an individual engaged in 11 to 20 hours of work, they will be paid 50 percent of their weekly benefit rate. If an individual engaged in 21 to 30 hours of work, they will be paid 25 percent of their weekly benefit rate.