Unemployment Compensation

Definition - What does Unemployment Compensation mean?

Established by the Social Security Act of 1935, unemployment compensation provides wage replacement benefits to employees who have lost their jobs due to layoffs or other reasons identified under the law.

Unemployment benefits were ushered in during the Great Depression due to massive unemployment. States hesitated to create their own unemployment compensation plans and risk losing jobs to other states, so eventually the Federal Government implemented their own plan. Now millions of Americans are covered by unemployment compensation plans and are eligible to receive some type of unemployment compensation if they lose their jobs.

Justipedia explains Unemployment Compensation

State unemployment laws determine eligibility for unemployment compensation, the amount of compensation awarded, and the length of time during which benefits are paid. Employees who are fired for misconduct or who quit their jobs without good cause, however, do not qualify for unemployment compensation.

Rules and regulations may vary by state. For example, employees may be required to meet their resident state’s weekly requirement for hours worked or compensation generated, and employees generally must be actively seeking new employment.

Unemployment compensation is funded through a tax on employers. The obligation for employers to pay unemployment taxes is determined through state law. If an employer has a covered employee who is laid off, assuming that the worker has worked a minimum number of weeks and earned a qualifying wage, the worker will receive unemployment compensation. Some states may also offer part-time workers limited unemployment compensation benefits. Self-employed workers do not qualify for unemployment compensation.

Covered unemployed workers are entitled to unemployment compensation, despite additional means of support. Severance pay also may not eliminate the right to unemployment compensation, although state laws determine how severance is treated. Workers who receive unemployment benefits must, however, be available for work, which means that they are willing and able to find new employment. Workers who refuse work or who are not actively seeking new employment may forfeit their right to unemployment compensation.

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