Tax News Update    Email this document    Print this document  

In response to the national emergency that has been in effect since March 1, 2020 to address the COVID-19 pandemic, the U.S. Department of Labor (USDOL) and Congress took steps to expand on the existing state unemployment insurance (SUI) programs for lost wages related to stay-at-home orders, business interruptions and other consequences connected with the virus. The following provides an overview of these unemployment insurance (UI) changes of interest to employers as enacted through March 11, 2021.

History of federal COVID-19 legislation impacting UI

Below is a chronological listing of the legislation enacted through March 2021 that provides unemployment-related COVID-19 relief.

Fig. 1: History of federal UI legislation for COVID-19 relief through March 2021

* For all USDOL Program letters for COVID-19 go here.

Noncharging of regular UI benefits to employer accounts for experience rating purposes

Effective March 18, 2020 and through December 31, 2020, the FFCRA provides that, in the context of COVID-19, states have the flexibility of determining whether UI benefits that are not federally funded will be charged to employer accounts for experience rating purposes and should consider how to fairly distribute these costs to employers. (This provision remains in place under the CARES Act, CAA and ARPA.)

If states choose to provide noncharging relief to reimbursable employers (i.e., governmental and nonprofit employers), the same noncharging relief must also be provided to contributory (i.e., experienced rated) employers.

Note that states are not allowed to relieve an employer account of UI benefit charges if the employer, or agent of the employer, (1) is at fault for failing to respond timely or adequately to the state's request for information relating to an unemployment compensation (UC) benefits claim that was subsequently overpaid and (2) has established a pattern of failing to respond timely or adequately.

Program flexibility

Effective March 18, 2020 and through December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA), the FFCRA allows states to temporarily modify their UI laws and policies in response to the COVID-19 emergency in the follow areas.

• Suspend UI applicant requirements for work search and a waiting week to receive UI benefits. (See also "Federal funding for first week of UI benefits," below.)
• Amend the instances in which "good cause" is considered in determining eligibility for UI benefits. "Good cause" often applies in job separations where the individual voluntarily quits, as well as issues of suitable work, able-and-available requirements, and reporting requirements. Under this provision, states may expand on the allowable reasons for extending deadlines or suspending in-person reporting requirements.

Federal funding for first week of UI benefits

Effective on the date that the state enters into an agreement with the USDOL, and ending with weeks of unemployment on or before December 31, 2020 (extended through March 14, 2021 by the CAA and through September 6, 2021 by the ARPA), if the state does not have a waiting week for the payment of regular UI benefits, the CARES Act provides 100% funding to states for the total amount of regular UI benefits paid to individuals for their first week of regular UI. (See also "Program flexibility," above.)

This benefit is federally funded and is not charged to employer accounts for experience rating purposes.

Pandemic Unemployment Assistance (PUA)

Effective with weeks of unemployment beginning on or after January 27, 2020, and ending on or before December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA), the CARES Act provides up to 39 weeks of UI benefits (increased to 50 weeks by the CAA and to 79 weeks for periods of unemployment ending after March 14, 2021 by the ARPA) to individuals who are self-employed, seeking part-time employment, or otherwise would not qualify for regular UI benefits or extended benefits (EB) under state law, federal law or the Pandemic Emergency Unemployment Compensation (PEUC) program.

PUA is available in the US, American Samoa, Commonwealth of the Northern Mariana Islands, the District of Columbia, Federated States of Micronesia, Guam, Marshall Islands, Puerto Rico, the Republic of Palau, and the U.S. Virgin Islands, provided the state/territory signs an agreement with the USDOL.

To qualify for PUA, individuals must demonstrate that they are otherwise able to work and available for work within the meaning of applicable state law, except that they are unemployed, partially unemployed, or unable or unavailable to work because of COVID-19.

PUA benefits are federally funded and are not charged to employer accounts for experiencing rating purposes.

Pandemic Emergency Unemployment Compensation (PEUC)

Through December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA), the CARES Act provides for an additional 13 weeks of UI benefit (increased to 24 weeks by the CAA, and to 53 weeks by ARPA for any week of unemployment ending on or before March 14, 2021). The PEUC covers individuals who: have exhausted all rights to regular UI benefits under state or federal law; have no rights to regular UI benefits under any other state or federal law; are not receiving compensation under the UI laws of Canada; and are able to work, available for work, and actively seeking work.

Note, however, that states are required to offer flexibility in meeting the "actively seeking work" requirement if individuals are unable to search for work because of COVID-19, including because of illness, quarantine, or movement restriction.

Federal Pandemic Unemployment Compensation (FPUC), Lost Wages Assistance (LWA) and Mixed Earners Unemployment Compensation (MEUC)

April 5, 2020 through July 21, 2020 (FPUC)

Effective for all weeks of unemployment between April 5, 2020 and July 31, 2020, the CARES Act provided an additional $600 per week to individuals who were collecting regular UI benefits.

Through September 6, 2021, the FPUC provision (as extended under the CAA and ARPA) also applies to individuals receiving UI benefits under the following programs:

• Unemployment Compensation for Federal Employees (UCFE)
• Unemployment Compensation for Ex-servicemembers (UCX)
• PEUC
• PUA
• EB
• STC
• Trade Readjustment Allowances (TRA)
• Disaster Unemployment Assistance (DUA)
• Self-Employment Assistance (SEA)

Note that through September 6, 2021, FPUC (as extended under CAA and ARPA) is available in the US, Puerto Rico, and the US Virgin Islands, provided the state/territory signed an agreement with the USDOL.

FPUC is federally funded and is not charged to employer accounts for experiencing rating purposes.

September 1, 2020 to December 27, 2020 (LWA)

In consideration that the added $600 per week of federal UI benefits of FPUC authorized under the CARES ACT ended on July 31, 2020, the Administration authorized the Federal Emergency Management Agency (FEMA) to spend up $44 billion from the Disaster Relief Fund to continue funding UI benefits for lost wages due to COVID-19.

Under this Lost Wages Assistance (LWA) program, qualified individuals could receive an added federally funded benefit of up to $300 per week and an optional $100-per-week benefit paid by the state or territory. (FEMA: Lost Wages Supplemental Payment Assistance Guidelines.)

The $300 weekly benefit was paid directly by FEMA and was not charged to employers' UI accounts for experience rating purposes thereby not affecting the future assigned SUI tax rates of employers.

FEMA funding to each state was based on the state's projected estimate of the amount of lost wages supplemental payments to be made per week, the estimate of eligible claimants and a planning estimate for the state, inclusive of FEMA's budgetary authority.

All states (except South Dakota) and the District of Columbia, Guam and the US Virgin Islands applied for the LWA grants before the September 10, 2021 deadline. Only five states (Kansas, Kentucky, Montana, Vermont and West Virginia) provided the full $400 weekly benefit; the remaining paid only the federally funded amount of $300 per week. (See EY Tax Alert 2020-2281.)

December 27, 2020 to September 6, 2021 (FPUC and MEUC)

For weeks of unemployment beginning after December 26, 2020 and ending on or before March 14, 2021, the CAA and ARPA reauthorize the FPUC at $300 per week. This FPUC is not payable with respect to any week during the gap in applicability, that is, weeks of unemployment ending after July 31, 2020, through weeks of unemployment ending on or before December 26, 2020.

Beginning with weeks of unemployment no earlier than week ending January 2, 2021 (January 3, 2021 for states with a Sunday week ending date) and through the week of unemployment ending on or before September 6, 2021, the CAA and ARPA also authorize an additional $100 per week under the new Mixed Earners Unemployment Compensation (MEUC) program.

To be eligible for this additional MEUC payment, the individuals must:

• Have received at least $5,000 of self-employment income in the most recent tax year prior to their application for regular UI benefits
• Be receiving a UI benefit (other than PUA) for which FPUC is payable
• Submit documentation substantiating their self-employment income

This additional payment does not apply to individuals collecting PUA.

Short-term compensation (STC)

STC, also known as "shared work" or "workshare," is a lay-off-aversion program where an employer reduces the hours for a group of workers to avoid layoffs and these workers receive a partial unemployment benefit payment.

Currently, 29 states have an active workshare program, or legislation in place for one.

Starting with weeks of unemployment beginning on or after March 27, 2020 and ending with weeks of unemployment ending on or before December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA), the CARES Act provides that states with an existing STC program may be reimbursed for 100% of STC benefit costs, up to a maximum of 26 weeks of STC per individual.

If a state enacts a new law providing for the payment of STC after March 27, 2020, reimbursements are available starting with the effective date of the state law enactment and ending with weeks of unemployment ending on or before December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA).

States without an existing STC program in the state's UC law may provide STC benefits under an agreement with the USDOL and be reimbursed for 50% of STC benefit costs, with the employer paying the other 50%, up to a maximum of 26 weeks of STC per individual. This federal STC program is available for weeks of unemployment beginning on or after the date on which the state enters into an agreement with the USDOL and ending with weeks of unemployment ending on or before December 31, 2020 (extended to March 14, 2021 by the CAA and to September 6, 2021 by the ARPA).

Interest on federal unemployment loans

Under the ARPA, interest on federal UI loans to pay UI benefits starting in 2020 will begin to accrue as of September 7, 2021 (extended from January 1, 2020, by the FFCRA and from March 15, 2021, under the CAA).

As a result, and unless further federal legislation is enacted, the first interest payments on federal UI loans will begin to be due from states in the fall of 2021.

Most states pass the cost of federal UI loan interest on to employers in their states through surcharges that are added to the regular state UI tax rate. (See USDOL Program Letter No. 14-21.)

Reimbursing employers

Rather than paying UI based on an assigned tax rate (i.e., contributory employer), state and local governmental entities, certain nonprofit organizations and federally recognized Indian tribes have the option under federal law to reimburse the state directly for UI benefits paid to their employees (i.e., reimbursing employers).

Under the CARES Act, and for the period of unemployment beginning on March 13, 2020 and ending on or before December 31, 2020 (extended to March 14, 2021 under the CAA and to September 6, 2021 under ARPA), transfers are authorized from the federal unemployment account to state unemployment trust funds for 50%* of the amount of UI benefits paid to employees of reimbursing employers. This transfer applies for the covered period, even if individuals are unemployed for reasons other than COVID-19.

*For weeks of unemployment beginning after March 31, 2021 and through September 6, 2021, the ARPA increases

from 50% to 75%.

The USDOL explained in Program Letter 18-20 that reimbursing employers remit to the state 100% of the UI benefits paid to their employees. Upon receipt of payment from the reimbursing employer, the state may then refund to that employer up to 50% (75% effective after March 31, 2021) of the UI benefits paid in the covered period.

The PNA amended the CARES Act by requiring that states use COVID-19 federal UI funds exclusively to reduce the amount required to be paid by the reimbursing employer in lieu of contributions. The amendment relieves reimbursing employers of the financial hardship of fronting cash for UI benefit claims that will later be refunded. (See USDOL Program Letter No. 18-20,Change 1.)

Employee notice concerning availability of UI benefits

Employers in most states have long been required to inform employees about their rights to UI and how to claim benefits, if eligible. Our 2021 survey of state workforce agency websites shows that, except for Hawaii and South Carolina, all states require employers to post a notice in the workplace about the availability of UI benefits to eligible workers.

Due to the significant increase in the number of jobless in connection with COVID-19, the USDOL wanted employers to go further in letting employees know about their rights to UI benefits. Accordingly, to be eligible for emergency funds, the FFCRA stipulates that states must require employers to provide a notice to separated employees of the availability of UI benefits.

Prior to the COVID-19 emergency just nine states required that a notice concerning the availability of UI benefits be provided to each separated employee (Arizona, California, Delaware, Illinois, Massachusetts, Nevada, New Jersey, Oklahoma and Tennessee). Because of the FFCRA, CARES Act, CAA and ARPA funding incentives, the requirement now applies in most states.

States have flexibility in determining the contents of the required employee notice; however, in Unemployment Insurance Program Letter 13-20, the USDOL provides a model notice that states may use. States are also given flexibility in determining the form that employers may use in providing the notice to employees (such as by letter, email, text message or flyers).

See our special report for details concerning the state notice requirements as of November 9, 2020.

Employer reporting of job refusals by UI benefit claimants

Effective January 26, 2021, the CAA imposes the requirement for tracking a UI benefit recipient's refusal to accept work. States are encouraged to make the following provisions permanent, despite their requirement only for the period that states have entered into a COVID-19-relief agreement with the USDOL.

• Process for addressing work refusals

States must have a method to address circumstances in which an individual refuses to return to work or to accept an offer of suitable work without good cause. The key requirement is that states have a procedure for how reports are received, evaluated/adjudicated, and resolved to determine the impact on an individual's continued eligibility for UI benefits.

• Reporting method for employers

States must provide a reporting method for employers to notify the state agency when an individual refuses an offer of employment. Examples of this reporting method include a phone line, email address, or online portal by which employers can notify the state agency. The CAA does not require employers to report work refusals, only that states have a method allowing them to submit this information.

• Notification to individuals

States must provide a plain-language notice to claimants who refuse to return to work or to accept an offer of suitable work without good cause. The contents of this notice are included in USDOL Program Letter 9-21.

Ernst & Young LLP insights

Unlike with the federal DUA, availability of the expanded UI benefit provisions under the FFCRA. CARES Act, CAA and ARPA depend on each state and territory meeting the requirements for federal funding. As a result, the speed and manner with which expanded UI benefits are adopted and implemented vary by jurisdiction.

Employers and employees will be challenged to deal with the inconsistencies in the COVID-19 UI benefit procedures and policies across the states and territories.

Finally, employers will need to be diligent in identifying employees eligible for UI benefits due to COVID-19 and to confirm that their accounts were not incorrectly charged for those benefits.

———————————————

———————————————
ATTACHMENT

EY Payroll News Flash