April 7, 2020

The Effect of the CARES Act and Unemployment Costs

The Effect of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Unemployment Costs

April 7, 2020

The nearly $2 trillion CARES emergency stimulus package will provide needed relief, including cash assistance for millions of people and a significant boost to unemployment benefits with over 17 million now unemployed.

The relief package includes: 

*New eligibility for workers sick or quarantined, those who have been laid off or had hours reduced due to the outbreak, people who cannot work because they have to care for children or family member, independent contractors, self-employed, and freelancers.

*The bill will increase the maximum unemployment benefit that a state gives to a person by $600 per week for up to four months.

*In addition to the enhanced checks, lawmakers added up to 13 weeks of extended benefits which would be fully covered by the federal government. 

*The legislation would also assist those who have had their hours reduced by providing incentives to states to adopt work-sharing programs. This would allow employers to cut workers’ hours but not lay them off. 

While the Relief Act eliminates the waiting period, provides an extra $600 federal bonus, and offers a 13-week extension, the states have not mentioned any help available for companies. Employers will have huge increases in unemployment benefit charges being assessed to UI accounts due to the Coronavirus.  

Once the virus has abated and most people return to work, there will be a lot of questions that need to be answered:

  • How will the state and federal government replenish unemployment funds? 
  • Will employers see increases in state unemployment taxable wage bases? 
  • Will there be unemployment surtaxes passed on to employers? 
  • What assistance will the state and federal government give employers for their UI accounts being charged? 
  • How much will FUTA (Federal Unemployment Tax) be increased as well?

 

It’s our understanding that, the typical unemployment benefit besides the $600 federal bonus and up to 26 weeks will be charged to the state UI trust funds and individual employer accounts based on state law. The increase in benefit charges until June 30th(July 1st being the start of a new year for unemployment charges) will increase state unemployment tax rates for 2021 unless the employer is currently at the maximum rate or has a very large positive reserve account balance. Employers should review this and understand how much their unemployment tax rates and costs could go up for 2021. Depending on how long people are on unemployment and how much the state funds and employers’ individual reserve accounts are depleted, even more increases could occur for 2022 and 2023. Non-profit organizations, many of whom are reimbursing and pay month-to-month for their unemployment benefit charges, could see their monthly unemployment bill increase dramatically if there is no assistance for them.

In a normal recession, UI tax rates go up dramatically over the course of three years following the start of a recession, and then begin to flatten out and come down. The size of the increase here is so great that rates may jump significantly.  

We are here to be a resource and to help you navigate through these unchartered waters. Please contact Ken Kruse at ken.kruse@ucalternative.com  if you have any questions about this information or would like to know more about projecting unemployment costs and increases. In the meantime, we will post updates as we have them.