Unemployment Insurance/Compensation
| Author | Jeffrey Wilson |
| Pages | 1125-1130 |
Page 1125
The U.S. Constitution does not recognize any right to work for pay. However, by virtue of a myriad of federal and state laws, persons who work for pay but lose their employment through no fault of their own and are unable to immediately secure other employment are generally eligible for temporary monetary assistance.
"Unemployment compensation" is generally paid to eligible persons through mandatory state programs designed to protect workers from interruption of wages or income due to loss of work. Compulsory, state-imposed unemployment insurance is generally carried at the expense of employers. Unemployment insurance shifts the burden of unemployment from the taxpayer at large to industry and business. It also alleviates the burden of financing public assistance for unemployed persons.
The unemployment insurance program was established under Title IX of the federal Social Security Act of 1935 (42 USC 1101). Correlative with that act is the Federal Unemployment Tax Act (FUTA) (26 USC 3301 et seq.) Under this law, each state administers a separate unemployment insurance program that must be approved by the Secretary of Labor based on federal standards (42 USC 503; 20 CFR 640.1 et seq.). Federal standards apply because the state programs are made applicable to areas normally regulated by federal law (under labor, commerce, and general welfare clauses). Special federal rules apply for nonprofit organizations and governmental entities.
Under FUTA, a combination of federal and state taxes is levied upon employers. Although they are imposed as "taxes," the amounts paid are, in reality, akin to "premiums" that are paid for unemployment insurance coverage.
Proceeds from the taxes are deposited in the U.S. Treasury's Federal Unemployment Trust Fund (the Fund) and each state has a separate account in the Fund. The funds are generally invested by the Secretary of the Treasury in government securities similar to those for social security trust funds. The use of these funds for any purpose other than payment of unemployment benefits is strictly prohibited. (42 USC 1104).
The Fund itself holds revenues in three separate federal accounts:
The Employment Security Administration Account covers federal and state administrative costs for unemployment insurance and
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other employment services, such as for veterans. This account also contains federal grants to states under 42 USC 1101 et seq. for unemployment compensation administration.
The Extended Unemployment Compensation Account contains the federal share of revenues which are drawn upon for extended unemployment benefits during periods of high unemployment.
The Federal Unemployment Account advances moneys to depleted state trust funds to ensure that benefit obligations are met. These funds are repayable by the states to this account.
As long as a state maintains minimum standards required under the federal Act, it remains eligible to participate in the federal-state collaboration that provides it with access to the above funds and grants (in the form of replenishment of exhausted funds, advances, special assistance when economic crises exist, etc.). While states are not required to conform to every federal statutory provision, they may not preempt federal law with respect to those areas where federal law is express. Thus, while state law generally governs eligibility requirements, amounts received, and maximum eligibility periods for benefits, these provisions must not conflict with any expressed federal provisions.
The Railroad Unemployment Insurance Act (45 USCS 351) expressly governs unemployment compensation for workers in the railroad industry.
The Trade Act (19 USCS 2271) provides special payments to workers unemployed or facing unemployment as a result of imported goods and products that compete in the domestic market with goods or products produced by the workers' employers. Special federal rules also apply for nonprofit organizations and governmental entities.
The FUTA tax is in the form of a payroll tax imposed upon (and paid by) employers. It is not withheld from employee wages. The amount that employers must pay is based on the amount of wages they pay to employees (excluding agricultural and domestic workers). Generally, employers are liable for FUTA taxes if one of the following applies:
they have paid wages totaling at least $1,500 in any calendar quarter
they have at least one employee on any given day in each of 20 calendar weeks (the 20 weeks need not be consecutive, and the "one employee" need not be the same person).
Once an employer is liable for FUTA under the above criteria, the employer must pay FUTA tax for the current calendar year as well as the next calendar year. The FUTA tax is currently at 6.2 percent, scheduled to decrease to 6.0 percent in 2008. The FUTA tax is imposed as a single flat rate on the first $7,000 of wages for each employee; no tax liability is incurred beyond the $7,000.
FUTA taxes are reported annually on Form 940, "Employer's Annual Federal Unemployment Tax Return," due every January 31 for the preceding year. On an annual basis, the Secretary of Labor reviews and certifies each state unemployment insurance program to the Secretary of the Treasury. The certification is...
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