The Department of Labor released the first round of guidance to help interpret the provisions of the CARES Act. This guidance includes important direction for states to implement the CARES Act, including an emergency increase in unemployment benefits.
The act offers an additional $600 per week to individuals who are collecting regular unemployment compensation, including partial and work-share benefits, in addition to unemployment compensation for ex-servicemembers UCX, PEUC, PUA, EB, STC, trade readjustment allowances (TRA), disaster unemployment assistance (DUA), and self-employment assistance (SEA). This additional pay is available for weeks of unemployment after the date that the state enters into an agreement with the Department of Labor and is expected to end with weeks of unemployment ending on or before July 31, 2020.
Return to Work:
The additional $600 per week will result in many pandemic payments exceeding the amount to be paid in regular unemployment compensation. For those claimants who are partially unemployed, or being paid STC, the $600 will exceed the amount typically paid for the week. The total amount of compensation in these cases may exceed the weekly wages that were normally paid to the individual. These cases may create a disincentive for unemployed workers to return to work. But, non-wage compensation, health insurance, pensions, etcetera may also be considered as individuals decide to return to work. It is an ongoing requirement that individuals be able to work, available to work, and actively seeking work. The additional $600 will support individuals in need of financial assistance until COVID-19’s impact diminishes, and when work becomes available and the short-term program ends the shift will encourage workers to return to work.
When the additional $600 is added to payments of regular benefits, the daily cash needs of the Unemployment Insurance trust fund accounts will increase and trust fund balances will decrease. The Department of Labor advises that it will be important to ensure that the US Treasury provides timely repayment to the Unemployment Insurance trust fund for amounts paid in pandemic payments.
SUI Rate Computation:
Most unemployment contributions are computed by July 1st in most states. These contributions are based on contributions paid, benefits charged, payroll, the balance in individual employer accounts in most states, and/or the state’s unemployment trust fund. All states and their treasuries should assure that amounts paid for the additional $600 payments are not factored into employers’ contribution rates and do not reduce the unemployment trust fund balance. The treasury must account for the additional $600 payments for the period ending June 30th, even if the reimbursement is received later in the year.
Solvency/FUTA Offset Credit Reductions:
Cash flow and reimbursement are not only important to avoid UI contribution rate increases. It is also important to avoid any borrowing or imposing reductions in the FUTA offset credit. States should ensure that reimbursement delays do not affect whether the state unemployment trust fund has a negative balance as of January 1, 2021. Some state trust funds can be at risk of negative trust fund balances as of January 1, 2021 though. This negative balance would trigger a potential of FUTA tax increases for 2022 if a positive balance is not restored by January 1, 2022. As a result, the Department of Labor proposes the following:
- For benefit programs included in the CARES Act, full reimbursement of benefits payable for PUA, FPUC, and PEUC will be available to state agencies through treasury’s automated standard application for payments (ASAP) system. Please be aware that the update does not have an answer to the question of whether employers will not be charged for the additional $600 payments or if there will be reimbursement for individual reimbursing employer accounts.
- The update does not address the specifics of charging or reimbursement to individual reimbursing employer accounts or the payment of the waiting week. This update first of a series of updates and the Department of Labor will issue additional guidance next week.
Our office will monitor COVID-19 updates closely and will send out additional announcements as we become aware of any these updates. You can also review these updates on our website at http://covid19.thomas-and-company.com/covid-19/ too.
Please reach out to your representative with any questions.