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The Complete Guide to Unemployment Insurance

Key Takeaways

1. Unemployment insurance financially protects employees who lose their job by providing them with a temporary replacement income until they find a new job.

2. Unemployment insurance is a tool for maintaining economic stability during downturns as it offers a continued stream of spending money which can help sustain consumer demand.

3. Unemployment insurance in most US states offers up to 26 weeks of benefit to workers who have lost their jobs and on average replaces about 50% of their previous income.

4. Unemployment insurance exists in other countries in varying forms such as in Germany (Arbeitslosengeld) where it is compulsory, or ‘Jobseekers Allowance’ in Britain.·       

5. Global PEOs can help growing international organizations by arranging payroll and managing employee insurances, including unemployment insurance, for offshore employees.

As we return to the post-pandemic new normal, the commercial environment is entering a corrective phase: downsizing and upscaling is needed as business adjusts to new economic norms.  We are seeing significant movements in the labour market as a result, such as the record numbers of employees quitting their jobs. Unemployment, be that short or long term, voluntary or forced will be high up the agenda and unemployment insurance, (the economic safety net for the involuntarily unemployed), will have a crucial stabilizing role to play in this awkward post-pandemic transitionary period.

What is unemployment insurance?

The term ‘unemployment insurance’ is used in different ways. Sometimes it just means unemployment benefits, and the compulsory contributions that employees make to that (e.g., in the US. Read more in What is Payroll Tax?). In other places (like Germany, where its known as Arbeitslosengeld) it is compulsory, but a one-year top-up to benefits based on a percentage of income. It can also simply refer to private unemployment protection.

Unemployment insurance

Unemployment insurance helps to financially protect employees who lose their job, providing them with a temporary replacement income to bridge the gap until they find new employment, if they meet certain conditions. Established in the US in 1935, the federally mandated unemployment insurance  is funded by employers who make compulsory contributions into the state insurance fund on behalf of workers, providing them with some replacement income should they lose their job. The system is also a tool for maintaining economic stability during downturns as it offers a continued stream of spending money which can help sustain consumer demand, potentially preventing a deeper slide into recession.

Value of the benefit

In the US, basic unemployment insurance in most states offers up to 26 weeks of benefit to workers who have lost their jobs and on average replaces about 50% of their previous income. With the average job search taking about 5 months based on research by Randstad USA, this initial benefit is sized accordingly.

In states where the wider unemployment situation has deteriorated significantly, the Extended Benefits (EB) program may be invoked which offers a further 13 to 20 weeks of compensation to jobless workers who have used up their unemployment insurance entitlement.

Private unemployment insurance

The amount of unemployment benefit received varies by state and may not allow certain workers to live the life they have been accustomed to. Private unemployment insurance is a financial product designed to pay an income in the event of unemployment, which offsets the difference between the state unemployment benefit and the worker’s salary. This allows the employee to continue to live according to the means they have become accustomed too. Being a non-mandatory discretionary benefit this benefit is deployed more strategically as part of an enhanced employer value proposition.

Other countries 

In other places like Germany, unemployment insurance (Arbeitslosengeld) is a compulsory benefit. Typically you can claim up to 2 years’ worth of benefit based on how long you have been working and contributing to statutory social funds via compulsory salary deduction.

The British Unemployment Insurance System, again funded by employer’s compulsory social contribution to the national insurance fund, pays out a benefit to employees who involuntarily lose their jobs should they meet certain criteria. The actual benefit is a flat rate and varies according to the age of the recipient and unemployment benefit is paid for up to 182 days,

How can a global PEO help businesses manage unemployment insurance?

Unemployment insurance needs to be managed effectively in whichever jurisdiction you are operating in. To do this requires expert local knowledge of compulsory contribution protocols, and an ability to make deductions and payments within statutory timescales. This can be a complicated process for global organizations as they scale across multiple jurisdictions and have to negotiate different social insurance processes.

A global Professional Employer Organization (PEO) can simplify the international growth process for global companies through its ability to onboard and manage the payroll of employees on behalf of client companies in any global jurisdiction. They can offer additional support in the areas of employment contracts, employee benefits administration and they can help you correctly implement all required insurances in that jurisdiction.

The PEO can do this for you as the have the knowledge and ability to withhold compulsory contributions through payroll and they can access excellent insurance packages. PEOs perform these functions through an Employer of Record (EOR) solution, which is the mechanism that a PEO can use to provide a local legal entity to employ local workers. 

When an employer uses an EOR to enter a new country they do not have to establish their own legal entity, which is expensive and can take months. The EOR platform deployed by a PEO allows employers to enter new global markets at lightning pace with minimum hassle.

Apart from fulfilling key functions like payroll, benefits, (including non-mandatory discretionary benfits) etc, the EOR has no involvement with the day-to-day life of the employee.

Manage unemployment insurance with Horizons

If you are looking to grow your business internationally, reclaim lost market-share, or to take advantage of new opportunities post-pandemic then consider Horizons.

Horizons supports businesses internationally with employee onboarding and business setup, including the management of key insurances (such as unemployment insurance). 

Frequently Asked Questions (FAQ)

This is a state-provided insurance that pays a weekly wage to individuals if they lose their job. Although paying unemployment insurance is a federal requirement, individual states administer their own benefit programs. The benefit is funded by employers who make compulsory contributions to their state’s insurance fund on behalf of their employees. Standard state unemployment benefits typically pay a wage at about 50% of the individual’s salary, (prior to losing their job), for a period of 26 weeks.

Any employee who has worked for their employer for a least 20 weeks in the current or previous calendar year, (or who receive a wage of more than $1,500 from their employer during any calendar quarter of the current or preceding calendar year), is eligible for unemployment benefit. Since unemployment is defined as ‘losing a job through no fault of your own’, if an employee voluntarily leaves their jobs (quits) or is fired for just cause they will not be eligible for unemployment benefit. Self-employed individuals and independent contractors are not eligible for unemployment benefit.

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