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Changes to Unemployment Under the CARES Act Changes to Unemployment Under the CARES Act

Changes to Unemployment Under the CARES Act

Many employers are finding themselves making or considering the difficult choice to lay off (or sometimes terminate) their employees due to the effect of COVID-19. Others are reducing their employees’ hours, withdrawing previous job offers or delaying start dates for new employees. We have received many questions about whether employees will receive unemployment in these situations. The CARES Act provides substantial enhancements to unemployment compensation funded by the federal government. As Senator Charles Schumer stated, it is “unemployment on steroids.” Below is a summary of some of the relevant provisions in the CARES Act related to unemployment, in addition to a couple of provisions providing additional tax benefits for employers who are able to keep paying their employees.

Section 2102. Pandemic Unemployment Assistance
Section 2102 creates a temporary unemployment benefit for individuals who would not typically be eligible for unemployment benefits under state law. This includes self‑employed persons, independent contractors, those persons with a limited work history and those persons who have otherwise exhausted their entitlement to benefits under traditional state unemployment law.

To be eligible for this unemployment benefit, the reason for the individual’s inability to work must be related to the COVID‑19 pandemic. First, the individual must have been available to work (as provided under state law) and the individual must be unemployed, partially unemployed or unable or unavailable to work because of one of the following reasons:

  1. The individual has COVID‑19 or symptoms of COVID‑19 and is seeking a medical diagnosis;
  2. The individual has a household member who was diagnosed with COVID‑19;
  3. The individual is required to provide care for a family member or household member with a diagnosis of COVID‑19;
  4. The individual is a caregiver for a child or another person who is unable to attend school and/or their daycare facility, although the provision does not require the individual to be the sole caregiver;
  5. The individual cannot reach his or her place of employment because of a quarantine;
  6. The individual has been advised by a health care provider to self‑quarantine;
  7. The individual was scheduled to commence work and the job is no longer available or the individual is unable to reach the job and cannot get to work;
  8. The individual has become the head‑of‑household because the head-of-household died as a result of COVID‑19;
  9. The individual has been forced to quit his or her job as a direct result of COVID‑19 (perhaps an immunocompromised person who cannot work due to COVID‑19);
  10. The individual’s place of employment has closed as a direct result of COVID‑19, such as through a government shutdown order; or
  11. Any additional criteria developed by the Department of Labor.
Also included are self-employed persons, those who are seeking part‑time work and those who do not have sufficient work history or otherwise would not qualify for unemployment compensation under the state law requirements AND who meet the criteria in Items 1 through 11 above.

An individual is not eligible for unemployment compensation under this section if he or she is eligible to telework with pay or if he or she is receiving paid sick leave or any other form of paid leave during his or her absence from employment.

The benefits under Section 2102 are applicable for any work weeks that began on or after January 27, 2020 and ending on or before December 31, 2020. (Yes, you read that correctly. It can be retroactive.)

This provision is limited to 39 total weeks, which includes any weeks already provided by state law. Therefore, if your state ordinarily provides up to 26 weeks of unemployment, the federal government will step in and provide an additional 13 weeks of unemployment that is directly related to COVID‑19.

Under Section 2102, persons receiving benefits will also be eligible for an additional $600 per week provided in Section 2104, which is discussed in more detail below.

Section 2103. Emergency Unemployment Relief for Governmental Entities and Non‑Profit Organizations
This section provides relief for non-profits, government agencies and Indian tribes for half the costs they incur through December 31, 2020 to pay unemployment benefits.

Section 2104. Emergency Increase in Unemployment Compensation Benefits
Section 2104 has received the most press coverage related to the unemployment enhancements. This section provides an additional $600 per week to all individuals who are eligible for unemployment for up to four months. In other words, if an individual who would not traditionally be eligible for unemployment compensation under state law becomes covered under Section 2102, he or she will be eligible for this additional $600 per week. And, if the individual is eligible for unemployment compensation under state law for reasons unrelated to COVID‑19, he or she will still be eligible for the additional $600 per week.

States that enter into an agreement with the federal government to provide this benefit are prohibited from reducing their normal benefits as a result of this additional $600, i.e., whatever benefits the state had in place as of January 1, 2020 must remain status quo. This means some employees will receive more money in unemployment compensation than they would have received while working. For example, if an employee earned $800 per week, and under the state law, the maximum benefit the employee would receive was $400, the employee’s unemployment compensation would now be $400 plus $600 or $1,000.

The enhanced $600 per week applies from the date the state enters into an agreement with the federal government to provide the benefit through July 31, 2020. After that time, regular unemployment benefits will apply.

Section 2105. Temporary Full Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week
The federal government will subsidize the “waiting week,” which is common in many states. Ordinarily, an employee who files for unemployment compensation will have to wait for one week while he or she is seeking employment. Many states have already waived this provision. Now the federal government will pick up the tab as it relates to that waiting week.

Section 2107. Pandemic Emergency Unemployment Compensation
Under Section 2107, the federal government will subsidize an additional 13 weeks of unemployment benefits for anyone who has exhausted their weeks of eligibility under state Law. This provision sunsets on December 31, 2020.

Sections 2108 and 2109. Temporary Financing of Short‑Time Compensation Payments
Section 2108 provides federal funding to support “short‑time compensation” programs—where employers will reduce employee hours instead of laying the employees off. The employees who have reduced hours, but remain employed, would be eligible for a pro‑rated unemployment benefit. This provision also sunsets on December 31, 2020. Section 2109 provides similar funding as Section 2108 to states that begin short‑time compensation programs.

Section 2301. Employee Retention Credit for Employers Subject to Closure Due to COVID-19
Eligible employers will be able to take advantage of the Employee Retention Credit, which is a fully refundable tax credit tied to the payment of employee wages against the employer’s share of Social Security taxes. An eligible employer is one whose: (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. All eligible employers may claim a 50% credit of wages paid up to $10,000 per employee, which includes health benefits. If an eligible employer has 100 or less full-time employees, all employee wages qualify for the credit regardless of whether the employer is open for business. If an eligible employer has more than 100 full-time employees, qualified wages include only those paid to employees when the employer is not open for business due to COVID-19. Regardless of employer size, the credit is available for wages paid from March 13, 2020 through December 31, 2020.

Section 2302. Delay of Payment of Employer Payroll Taxes
Employers and self-employed individuals will be permitted to defer payment of the employer share of Social Security tax, which is typically 6.2%. This provision would allow the employer to make the deferred tax payments over the next two years. Half of the deferred tax payment would be due by December 31, 2021 with the remaining half due by December 31, 2022.

These are unique and complicated times for everyone. Hopefully, these new unemployment benefits will help calm some concerns felt by employers whose decisions impact the financial well-being of their employees. If you have questions about these or any other employment-related matters related to COVID-19, please contact Abigail Barr, Paul Bittner or any other member of our Labor, Employment & Immigration Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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