Payroll

Which employees are eligible for unemployment insurance?

Heads up: This article provides general information but it’s not legal advice. Please consult an HR expert or employment attorney for specific guidance on your business and situation.

In general, employees who are laid off are eligible for unemployment insurance. Employees who were fired for cause or quit their job are typically not eligible for unemployment insurance. However there are some exceptions to these rules. We’ll go into that more below.

What makes an employee ineligible for unemployment insurance?

In most states, employees are not eligible for unemployment insurance if they:

  • Were fired for a cause: If an employee was fired for misconduct, including breaking company policies or the law, they are not eligible for unemployment insurance. Employees who were fired due to incompetence, however, are often eligible.
  • Quit their job: If an employee quit their job, they are typically not eligible for unemployment insurance. There’s another exception, though. If the employee quit for “good cause”—a situation where harm or injury will occur if they don’t quit—they are often eligible. These can include:
    • The company moved somewhere that would substantially increase the employee’s commute or the job was relocated to another state;
    • A personal crisis, like the need to care for a spouse who has fallen ill;
    • The employee was subject to intolerable working conditions such as discrimination that were not addressed by the employer.

How does unemployment insurance work?

A terminated employee can put in a claim for unemployment insurance. If they do so, your state will then contact you to confirm some facts about their termination. At that time you can either approve or dispute the employee’s claim. Remember, if the employee was laid off you have to approve the claim. If they were fired for cause or quit, you can dispute it.

How is unemployment insurance calculated?

Your state sets your unemployment insurance tax rate, and it can change the rate on a yearly basis. What affects your tax rate? Often the number of former employees who claimed unemployment insurance can affect your unemployment tax rate. Put simply, the more people you lay off, the higher your unemployment insurance tax rate may be.

Do the unemployment laws change from state to state?

Yes, most states have their own twist on the books about who is and isn’t eligible for unemployment insurance. Before contesting a claim, check your state’s department of labor website to discover the exact laws that affect the situation.

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