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March 29, 2010
How the U.S. Unemployment System Works

In a 2010 BLR webinar entitled "Unemployment Taxes and Claims: How to Reduce Your Costs and Effectively Contest Claims," Ronald Adler, president and CEO of Laurdan Associates, Inc., outlined the history and structure of the U.S. unemployment system.

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America’s unemployment insurance system, he said, was designed to tackle two critical challenges for the U.S. economy:

  • Provide financial support—usually in the form of a weekly check for a minimum number of weeks—to employees who have lost their jobs through no fault of their own; and
  • Promote economic stability by rewarding employers who minimize job losses and employee turnover.

Generally, unemployment benefits are designed to help workers who were laid off because their employers didn’t have enough work for them or because their employers did something wrong.

The benefits paid to unemployed workers are financed through both federal and state unemployment taxes paid by employers directly.

Employers must pay federal unemployment taxes if they employed at least one person who worked at least 20 calendar weeks (not necessarily consecutive) during the current or preceding tax year, or if they paid at least $1,500 in employee wages during any given quarter. Employers who meet either of these conditions must pay Federal Unemployment Tax Act (FUTA) taxes for the entire current year.

Ronald Adler is president and CEO of Laurdan Associates, Inc. www.laurdan.com, a human resources management consulting firm specializing in unemployment insurance audits, consulting, research and expert witness testimony. Contact him at radler@laurdan.com.

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