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Understanding How Unemployment Insurance Benefits Work for Both Employees and Employers

Ms. Clark has managed the administrative duties of several small businesses and has collected unemployment on occasion herself.

Having run the administrative end of several small businesses, I learned how to navigate the requirements for unemployment insurance for our employees. It seems to me there are a lot of people who do not understand how unemployment insurance works, and some people even want to equate unemployment benefits with welfare of some sort that is paid to recipients by the government with tax dollars. Hopefully this article will help clear up some misunderstandings.


People who have many skills have more options when looking for a new job.

People who have many skills have more options when looking for a new job.

How Unemployment Is Determined For Employers

Employers are required to pay into their state’s unemployment program for each of their employees according to the number of hours each employee works and the amount of wages or salary each of their employees earns. Some employers may be exempt from paying into unemployment insurance because of the type of business they operate or because they have very few employees. This varies from one state to another.

It is generally accepted that the wages and salaries of employees will be somewhat lower to offset this expense that is incurred by their employer for their benefit. If unemployment insurance were not paid by their employer, presumably their salaries/wages would be higher. For that reason, unemployment benefits are considered part of an employee’s wages.

Just as some employers pay into health insurance programs so that their employees will have access to healthcare when needed, they also pay into the unemployment insurance program to help their employees get through periods of unemployment. The difference is mainly that employers are required to pay into the unemployment insurance program, where they may have a choice of whether or not to provide health insurance benefits to their employees.

When employers pay into the unemployment program, they never get their money back even if none of their employees ever collects a penny from the program. Generally, large employers like Verizon or Wal-Mart pay more into unemployment insurance than small companies for the obvious reason that they employ more people.

Generally, there are no tax dollars going into the unemployment insurance program. The market crash of 2008 changed that temporarily. Normally a person cannot collect unemployment benefits for more than 6 months, but because the economy was, and is so horrible, the federal government (and some state governments) subsidized the unemployment programs of various states so that people who could not find jobs within 6 months would receive benefits for longer than usual. The usual period for collecting benefits for 26 weeks was extended for some people for as many as 99 weeks. Again, this is a temporary measure and is not the case in every single state.

How Does a Person Qualify For Unemployment Benefits?

There are different conditions under which a person can collect unemployment benefits. Not everyone qualifies for unemployment benefits, and some people will receive no benefits even if they lose their job through no fault of their own.

First of all, there must be benefits available to the employee that is laid off. Here in Texas, a laid off employee’s benefits are determined by how many hours and how much pay they earned during the quarter 13 to 15 months prior to the time they are filing to collect benefits.

A quarter, in this situation is a three-month period. There are 12 months in the year, and the year is divided into quarters, or three-month periods. Jan-March, April-June, July-Sept., and Oct.-Dec.

If you were to apply for unemployment benefits on April 3, 2012, the unemployment commission here in Texas would look back at your work record one year and one quarter back in time, or Jan-March of 2011. Your benefits would be based on your wages/salary in that quarter from 2011. If you did not work during that quarter, you would receive no benefits. If you were earning only $7.50 an hour for 20 hours a week, your benefit would be based on those earnings even though the job you have just been laid off from was 40+ hours a week at $15.00 an hour.

The benefit an unemployed person usually gets will be approximately one third of what their weekly check was during the quarter in which their benefits are based. In the above example, one third of the pay earned in the quarter Jan-March in 2011 would be the person’s benefit if s/he applied for and qualified for unemployment benefits on April 3, 2012.

Just as there is a minimum wage, so there is usually a minimum unemployment benefit in most states. The minimum unemployment benefit in Texas for qualified recipients is $243.00 a week. It may be more or less in other states.

If you live in a state other than Texas, check with your unemployment, or state employment agency, to see how benefits are determined in your state. There may be some differences.

More Qualifications for Unemployment Benefits

People who are terminated for cause cannot collect unemployment benefits in most states. People who quit their jobs cannot collect unemployment benefits in many states.

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Here are the exceptions to those rules:

  • If an employee becomes physically disabled for some reason, and that prevents them from doing their job, and their employer refuses to make reasonable accommodations for their disability (give them a different job within the company that does not have the same impossible physical requirements, etc.), they may be able to collect unemployment benefits even though they have quit their job.
  • If an employee is terminated and the state workforce commission determines they were wrongfully terminated, they may be able to collect unemployment benefits.
  • Every unemployment claim is investigated to determine if an applicant is entitled to collect benefits or not. If it is determined that a person does not qualify for benefits, s/he can file an appeal. That process is explained in the booklet you should receive from your state unemployment commission in the event you file for unemployment benefits and you are denied.

Requirements For Continuing to Receive Unemployment Benefits Once You Qualify

Most states have requirements that a person receiving benefits must meet in order to get those benefits and keep those benefits. In order to know what your requirements are, you should check with your state unemployment commission or agency. This information should be included in the booklet you should receive if you apply for unemployment benefits, and should also be available on your unemployment commission’s website. Requirements may vary somewhat from one applicant to another, so you should receive a letter from your unemployment commission specifying exactly what your requirements are.

Here in Texas, a person receiving unemployment benefits may not turn down any job referral or any job offer unless that referral or job offer is for a job they cannot physically do, or are not qualified for. Also, if the pay is considerably less than they would normally earn, they may turn the job offer, or job referral down.

Here in Texas, after a certain amount of time has passed during which an unemployed person receiving unemployment benefits has not found another job, that unemployment benefit recipient is required to lower his/her wage/salary requirements based on their most recent job, by 20-25%. That means they can lose their benefits if they turn down a job because it does not pay as well as their most previous job. They must reduce their wage/salary expectations or requirements by 20-25% (exactly how much will be specified by their unemployment commission), but not lower than the state minimum wage.

Also, an unemployment beneficiary must make a minimum number of job searches every week. It is important to keep good records on the job searches because the unemployment commission will randomly request proof that these job searches or applications were done. Unemployment benefits can be lost because a person either did not do the job searches, or did not keep satisfactory records to prove they did the job searches. At some point you will be asked for proof of your job searches. It is not a question of if, but when. Be prepared with good records of your job searches.

There is one exception to these requirements. If an employee is laid off temporarily, often times their employer does not want them to search for another job. They want that employee to be available to return to work as soon as there is enough work to keep them busy. If their laid off employees were to search for a job during this slow time for some employers, they just might find a better job and then they would not return to their original employer. In a case like this an employer will inform the unemployment commission that no work searches are desired or required. They want their employees to collect unemployment benefits while work is slow, and they want to assure as much as possible that their employee will return to work when needed.

I have personally experienced this situation when I had a job that was seasonal and that required some special training. My employer was happy to provide unemployment benefits to help me get through those periods when there was no work, and even directly stated to me that they preferred I not search for interim work. They wanted assurance I would return when work resumed.

Remember, employers do not get any money back from the program even if none of their employees ever collect benefits. Unemployment insurance benefits both the employee when they lose their jobs through no fault of their own, and it benefits employers who do not want to lose good skilled employees because of a work slowdown.

Tax dollars do not usually contribute to unemployment insurance. The current situation is unusual and burdensome for many small employers, and that is the reason why the federal government, and in some cases state governments, have stepped in to pick up the slack in keeping unemployment benefits available to people who cannot find jobs.

Mistakes People Make Regarding Unemployment Benefits

The biggest mistakes laid off employees usually make:

  1. Not applying for benefits in the first place, even if they quit, or have been fired.
  2. Not following scrupulously, the requirements for keeping those benefits flowing, i.e., doing required job searches, or following through on job referrals from the unemployment commission, etc.

The biggest mistakes employers make:

  1. Not understanding how the unemployment program works and thinking it is not worth their while to educate themselves about it. Most large employers know their responsibilities and how to make the program work for them. A lot of medium sized and small employers do not.
  2. Not returning the inquiry forms their unemployment commission requests from them stipulating the reason for laying off, or terminating an employee, etc.
  3. Not showing up for the hearing that may be set regarding a former employee who has filed for unemployment benefits. Just like many lawsuits, if you don’t show, you lose by default.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

Questions & Answers

Question: If an employee left and didn’t communicate or contact his/her employer to give a reason why s/he was absent, is this quitting? Written company policy states that three days of no show and no calls, will end in termination, but HR wanted to check on the employee after day two. So contact was made then, and the employee is now claiming s/he was out on medical leave. This is a small company, not held to FMLA.

Answer: If the employer is willing to continue to employ the person after this behavior, that is their choice. If the company doesn't pay for unemployment, then their employees can't collect it either. In any case, if you are the person you are speaking of who irresponsibly missed work without letting them know you were going to be out, and why you were going to be out, then you should contact your local state unemployment office to see what if any benefits you may qualify for.

Question: What happens if I have money left over in my unemployment insurance account from the pervious year? What happens to that money?

Answer: The money that shows in 'your account,' is not actually your money. It is money the unemployment agency has made available if needed, based on your employment history. If you don't draw it all out before your claim expires, either because you found another job or because the number of weeks you could collect has ended, it will go back to zero. Each time you file a new claim the amount of money made available will be refigured based on your employment history.

Question: What happens to my claim if my previous employer does not respond to the paperwork that the Unemployment office has sent to them?

Answer: Your claim will be processed without information that would have been provided by your previous employer. As I said in the text of this article, one of the biggest mistakes employers make is ignoring information requests from the state unemployment office. When they ignore the request, they usually end up paying unemployment even when they might otherwise have avoided it.

Question: What happens if the unemployment office calls my work and they never answer? Will I receive benefits until they talk to them?

Answer: Your unemployment office will contact your last place of work in the course of their investigation to determine if you qualify for benefits. I have addressed this issue in the text of this article. If your place of employment does not respond to the request for information from the unemployment office, it will not prevent you from receiving benefits if you are otherwise qualified to receive them.

Question: When you draw unemployment, will it affect only my previous employer or will it affect the one before that?

Answer: As I explained in this article, unemployment benefits are based on the employer you worked for one year and three months previous to when you filed your request for benefits. Whoever was your employer at that time will be effected regardless of where they are located.

Question: What if an employer calls you a bitch and then you walk out, should you apply for unemployment insurance benefits?

Answer: As I have said many times in the body of this article, as well as in answers to questions posed to me, you should ALWAYS file for unemployment benefits when you lose a job for any reason. Your unemployment office will determine if you qualify for benefits. There are many requirements one must meet to qualify for benefits. You should always ask for an explanation if one is not given in the event you do not qualify.

One question you should ask yourself is whether or not you were working 1 year and 3 months prior to this event you describe with your recent employer. If you were, for how long were you working at that time? If you were not working at that time you will not likely qualify for benefits because that time a year and 3 months ago is what your benefit is based on. If you weren't working at that time there will be no money in your account. While unpleasantries would seem to be sufficient in order to collect benefits, they aren't always the determining factor. You may have to prove that was the reason you left your job and if there were no witnesses that could be difficult. Even if you do have proof, you will have to have been working long enough one year and three months prior to the time you quit your job (or were fired, as the case may be) in order to be able to receive benefits. File for benefits in any case. One reason people who qualify for benefits fail to get them is because they think they won't qualify and so they never app