How CARES Affects Unemployment Compensation Benefits

Over the last week, the Department of Labor released a quartet of summary letters, UI No. 14-20, UI No. 15-20, UI No. 16-20, and UI No. 17-20 interpreting the unemployment compensation provisions under the Coronavirus Aid, Relief, and. Economic Security Act (“CARES Act”) and explaining how they impact existing state unemployment compensation remedies and processes. The letters are intended to help states administer expanded unemployment compensation benefits, but private-sector employers can glean quite a bit of helpful information from the letters.

We have summarized what we find to be the most significant information in these letters and attempted to create an FAQ-style summary. Of course, the information below is not intended to capture every nuance of unemployment compensation under CARES, and this should not be considered an exhaustive summary of the unemployment compensation provisions in CARES.

What Programs Are Available?

There’s a lot of confusion around how the unemployment compensation provisions in CARES function. This is understandable; the provisions are dense and rapidly evolved over days of intense drafting and negotiation. Certain aspects of CARES direct the Secretary of Labor to create regulations that have not yet been released, and the amount and availability of expanded unemployment benefits may change due to future regulations.

But the big-picture structure should not. In essence, there are four available baskets of aid available to workers, and three of them are sweetened by a $600 federal supplement that is available through July 31, 2020.

1.  State Unemployment Compensation

• Who is eligible? Employees who are fired or experience a reduction in hours, subject to state-specific limitations.
• What do they get? Determined by state law. If the employee receives at least $1 of state unemployment compensation, the employee also receives a $600 federal supplement through July 25 or 26, 2020, depending on whether unemployment compensation weeks are calculated on a Saturday or Sunday.
• How long do they get this benefit? The duration depends on state law. The maximum is 26 weeks (although some states have extension opportunities), and some states with lower unemployment compensation periods are extending their benefits in response to the COVID-19 pandemic.
• Does the availability of this program ever expire? No.
• Is this payment paid by the state or federal government? States make these payments, including the $600 federal supplement. The federal government reimburses the state.

2.  Pandemic Emergency Unemployment Compensation

• Who is eligible? Employees are eligible if they:
  • Used all normal state unemployment compensation benefits;
  • Can’t get normal state unemployment compensation benefits;
  • Are not getting Canadian unemployment compensation benefits; and
  • Are able, available, and actively seeking work.
• What do they get? Determined by state law. If the employee receives Pandemic Emergency Unemployment Compensation for a week before July 25 or 26, 2020, depending on whether unemployment compensation weeks are calculated on a Saturday or Sunday, the employee also receives a $600 federal supplement. Based on the statutory text, this benefit may be available only for weeks of “complete unemployment.” However, the DOL guidance suggests that this benefit is available for weeks of complete unemployment and weeks of partial unemployment.
• How long do they get this benefit? This benefit is available for up to 13 weeks, but the $600 federal supplement is subject to the same end-of-July time limitation. Any benefit after that is the benefit available under state law for a week of total unemployment.
• Does the availability of this program ever expire? Yes, this program is set to expire December 31, 2020.
• Is this payment paid by the state or federal government? States make these payments, including the $600 federal supplement. The federal government reimburses the state. CARES directs states to create “Pandemic Emergency Unemployment Compensation Accounts” funded with benefits for each individual. The amount in the account is capped at 13 weeks.

3.  State Extended Benefits

• Who is eligible? Employees who have exhausted normal unemployment benefits, but only if the state has “triggered on” extended benefits under the Federal-State Extended Unemployment Compensation Act of 1970.
• What do they get? Determined by state law. The $600 federal supplement is not available for extended benefits.
• How long do they get this benefit? This benefit is available for between 13-20 weeks, depending on state law and the state’s unemployment rate.
• Does the availability of this program ever expire? Yes, states must “trigger” it, and states can “trigger off” extended benefits as they see fit.
• Is this payment paid by the state or federal government? States make these payments.

4.  Pandemic Unemployment Assistance

• Who is eligible? Pandemic Unemployment Assistance is available to “covered individuals.” A “covered individual” is someone who:
  • Must be one of the following;
    • ineligible for benefits;
    • exhausted all benefits;
    • be self-employed, seeking work, lack a sufficient work history; or
    • otherwise doesn’t qualify for regular or extended benefits
  • Must provide a self-certification that the individual is otherwise available to work but is unemployed, partially unemployed, or unavailable to work because of a number of COVID-related issues. UIPL 16-20 contains examples of each condition.
  • Is unemployed or underemployed because the individual cannot telework with pay for all work hours; and
  • Is not receiving any paid sick leave or other paid leave for customary hours worked.
• What do they get? The individual receives the greater of the weekly benefit amount available under state law and the weekly benefit amount available as Disaster Unemployment Assistance (calculated under a federal regulation). The $600 federal supplement is also available for Pandemic Unemployment Assistance for weeks before July 25 or 26, 2020. Any benefit will be reduced to the extent the individual is paid for teleworking or receives a form of paid leave.
• How long do they get this benefit? This benefit is available for weeks between January 27, 2020 and December 31, 2020. The $600 federal supplement is subject to the same limitation as the other provisions. An individual is capped at 39 weeks of Pandemic Unemployment Assistance, less any weeks of benefits used in other programs.
• Does the availability of this program ever expire? Yes, this program is set to expire December 31, 2020.
• Is this payment paid by the state or federal government? Technically, the federal government make these payments, but the Secretary of Labor is directed to provide these payments through states if the state has an adequate program to disburse them. It is difficult to imagine that the federal government would create a whole separate payment system just for this payment.

Do the Programs Have to Be Used in a Particular Order?

Yes, DOL guidance clearly contemplates that these programs should be used in a particular order.

For individuals eligible for unemployment compensation benefits, the individual should first apply and use any unemployment compensation benefits. Second, once those benefits have been exhausted, the individual should check their eligibility for Pandemic Emergency Unemployment Compensation. Third, if the state has “triggered on” state extended benefits, the individual should exhaust those. Fourth, if the individual is ineligible for Pandemic Emergency Unemployment Compensation and state extended benefits have been used or are unavailable, the individual may then be eligible for Pandemic Unemployment Assistance.

For individuals who are not traditionally eligible for unemployment benefits, like independent contractors and sole proprietors, the analysis is much easier: the individual either qualifies for Pandemic Unemployment Assistance or doesn’t receive any benefit.

What About People in Workshare Programs? Do They Get the Extra $600?

The answer is likely yes, and that undoubtedly comes as a surprise to Congress.  In a House Ways & Means Committee Report, the House Republicans noted that one difference between the Senate bill and the House bill was that the Senate bill did not include a provision that provided the $600 federal supplement to short-time compensation programs. (The House bill contained a provision specific to short-time compensation programs that allowed for a $300 benefit.)

The DOL, however, has taken a different view and determined that the federal $600 supplement is available for participation in a short-time compensation program. The DOL’s stance is likely the proper one based on CARES’s language.

Will Employers Be Charged For These Benefit Expansions?

States cannot charge employers for payments made using funds received from the federal government. State law will determine whether employers may be charged for unemployment benefits that are normally available absent CARES, and many unemployment claims may fall within exceptions under state law. For example, many state laws do not charge employers for benefits associated with claims because of a state declaration of disaster recognized under the Stafford Act. The federal government has recognized state declarations of disaster in more than two dozen states, so the impact of COVID-19 unemployment claims may have a diminished impact on unemployment tax accounts. However, the introduction of expanded benefits through CARES should not result in increased costs to employers. Moreover, another section of CARES suggests that the federal government may create regulations providing additional funding to states to offset additional unemployment compensation utilization.

Are These Expanded Benefits Subject to Special Treatment?

Yes, according to the DOL, the expanded unemployment benefits should be treated like payments of normal unemployment compensation under state law and be given the same protections from waiver, release, assignment, execution, attachment, and garnishment.

Are These Expanded Unemployment Benefits Taxable?

Yes, they are taxed and should be included on Form 1099Gs.

When Will the States Start Distributing These Benefits?

States are expected to start supplementing unemployment compensation payments with the $600 federal supplement beginning this week. Revamping state systems to handle claims for independent contractors or self-employed individuals is still a work in progress. While some states have indicated they will begin accepting these applications, even those note that these populations should not expect to receive benefits for several weeks after the application is submitted. 

Who Should I Contact if I am Interested in Further Discussions About How CARES’s Unemployment Compensation Provisions May Impact My Business?

Seyfarth has a deep bench of practical and talented attorneys with experience providing guidance on CARES and unemployment compensation. Please contact David Baffa and Alex Meier if you are interested in a conversation specific to your business.