Unemployment Compensation Under the CARES Act

March 27, 2020 Advisory

As part of the CARES Act, Congress broadly expanded unemployment compensation and allocated federal funds to support state-based short-time (also sometimes known as “work sharing”) compensation programs.

The CARES Act offers broad and comprehensive unemployment compensation above and beyond that provided under state unemployment compensation laws. Subject to agreements entered into between states and the federal government, generally, individuals who are unemployed, partially employed or unable to work due to COVID-19 will be eligible to receive $600 per week in federal assistance, in addition to the weekly compensation calculated under state unemployment compensation laws. However, these programs do not benefit those who can work from home with pay or who are receiving sick leave or paid leave benefits.

Even individuals who have maxed out their use of state and federal unemployment compensation benefits, are not currently receiving any compensation, and are able and available to work and actively seeking work, are eligible for the program, which provides an additional 13 weeks of unemployment benefits (beyond what they would have otherwise been entitled to under state and federal laws). The additional 13 weeks include both the state-calculated amount of compensation plus $600 in federal funds.

Note that, for self-employed individuals, the weekly benefit amount is calculated according to standard federal disaster unemployment benefit guidelines, in addition to the $600 Federal Pandemic Unemployment Compensation.

Short-Time Compensation Programs and Grants

Under the CARES Act, states are eligible to receive funding from the federal government for short-time compensation programs and associated grants.

Short-time compensation plans are special agreements between a state government and an employer, whereby the employer reduces employee work hours by greater than 10% to avoid layoffs and splits with the state government half of the cost incurred. The short-time compensation program must be eligible under IRC 3306(v). Most states have similar, more limited versions of such programs and refer to them as “work sharing” programs. Although the program under the statute is administered by the state, the federal government will reimburse 100% of the state’s cost of running the program.

What is the ultimate impact of the CARES Act?

The CARES Act was drafted to increase drastically the scope of unemployment compensation in this time of crisis. Employees who are laid off or have their compensation drastically reduced below state maximum benefits levels are likely to fit a category eligible for benefits. As of the writing of this article, the House Ways and Means Committee had published the following information: Provisions Related to Unemployment Compensation in the Senate-passed CARES Act.

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