Other Social Insurance and Veterans' Programs: Unemployment Insurance

By DiSimone, Rita L. | Social Security Bulletin, January 1, 1994 | Go to article overview
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Other Social Insurance and Veterans' Programs: Unemployment Insurance


DiSimone, Rita L., Social Security Bulletin


Through Federal and State cooperation, unemployment insurance programs are designed to provide benefits to regularly employed members of the labor force who become involuntarily unemployed and who are able and willing to accept suitable employment. Workers in all 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands are covered under unemployment insurance programs.

To induce States to enact unemployment insurance laws, the Social Security Act of 1935 provided a tax offset incentive. A uniform national tax was imposed on payrolls of industrial and commercial employers who employed 8 or more workers in 20 or more weeks in a calendar year. Employers who paid taxes to a State with an approved unemployment insurance law could credit (offset) up to 90 percent of the State tax against the Federal tax. This insured that employers in States without an unemployment insurance law would not have an advantage competing with similar businesses in States with such a law because they would still be subject to the Federal payroll tax, and their employees would not be eligible for benefits.

In addition, the Social Security Act authorized grants to States to meet the costs of administering the State systems. By July 1937, all 48 States, the then territories of Alaska and Hawaii, and the District of Columbia had passed unemployment insurance laws. Later, Puerto Rico adopted its own unemployment insurance program, which was incorporated in 1961 into the Federal-State system. A similar program for workers in the Virgin Islands was added in 1978.

If employers are to receive an offset against Federal taxes and if States are to receive Federal grants for administration, Federal law requires State unemployment insurance programs to meet certain requirements. These requirements are intended to assure that a State participating in the program has an unemployment insurance system that is fairly administered and financially secure.

One requirement is that all contributions collected under State laws be deposited in the unemployment trust fund of the U.S. Treasury Department. The fund is invested as a whole, but each State has a separate account to which its deposits and its share of interest on investments are credited. At any time a State may withdraw money from its account in the trust fund, but only to pay benefits. Thus, unlike the situation in the majority of States having workers' compensation and temporary disability insurance laws, unemployment insurance benefits are paid exclusively through a public fund. Private plans cannot be substituted for the State plan.

Aside from Federal standards, each State has major responsibility for the content and development of its unemployment insurance law. The State itself decides the amount and duration of benefits (except for certain Federal requirements concerning Federal-State Extended Benefits); the contribution rates (with limitations); and, in general, the eligibility requirements and disqualification provisions. The States also directly administer the programs--collecting contributions, maintaining wage records (where applicable), taking claims, determining eligibility, and paying benefits to unemployed workers.

Coverage

Originally, coverage had been limited to the employment covered by the Federal Unemployment Tax Act (FUTA), which relates primarily to industrial and commercial workers in private industry. However, several Federal laws added substantially to the number and types of workers protected under the State programs, such as the Employment Security Amendments of 1970 and the Unemployment Compensation Amendments of 1976.

Private employers in industry and commerce are subject to the law if they have one or more individuals employed on 1 day in each of 20 weeks during the current or preceding year, or if they paid wages of $1,500 or more during any calendar quarter in the current or preceding year.

Agricultural workers are covered on farms with a quarterly payroll of at least $20,000 or employing 10 or more employees in 20 weeks of the year.

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