Does an Employer Have to Pay for Unemployment When an Employee is Laid Off?

In most cases, when you are laid off, the employer who terminated your position does not directly have to pay for your unemployment benefits; these checks come from the state's unemployment fund. However, businesses pay unemployment taxes based on their track record retaining employees, so an employer that regularly lays off workers will face an increased unemployment tax rate.

However, some states to allow some types of businesses the option of reimbursing the state directly for unemployment benefits made to their former workers.

Tip

If COVID-19 has affected your job, you may be eligible for unemployment benefits. Head to the Department of Labor's website for updates, and check out careeronestop to learn how to file for unemployment in your state.

Your employer pays a quarterly unemployment tax to your state unemployment agency. These tax payments become part of the state's general unemployment tax fund. If you are laid off and file for unemployment benefits, the state writes you checks using the money in this fund.

In this sense your employer does pay for your unemployment benefits, because the money comes out of a fund that is made up in part of his unemployment tax payments. However, he does not directly write your unemployment check, and there is no a direct relationship between the funds in your particular claim and the tax payments he has made.

State unemployment agencies base each employer's unemployment tax rate on his record retaining employees. This is called an "employer benefit ratio," and it is determined by means of a formula that calculates the amount that the state has paid out in benefit claims tracked to this employer relative to the total amount that this employer has paid to employees in wages.

The fewer unemployment claims made by workers who have been laid off by your employer, the lower his benefit ratio will be and the less he will pay in unemployment taxes.

Some states such as New York and Connecticut allow certain types of employers the option of reimbursing the state for the exact amount of benefits paid to their former employees. New York State extends this option to nonprofit organizations, who must reimburse the state no later than 30 days after the end of the month when the benefits are paid. This option is financially advantageous for employers who rarely lay off workers.

In addition to state unemployment taxes, your employer must also pay an annual federal unemployment tax. The rate for this tax does not vary in accordance with whether or not your employer has laid off employees. The federal government uses the money it collects through this tax to help states pay for the administrative costs of running its unemployment insurance program. In this way your employer shares some of the cost of distributing your unemployment check without directly paying your benefits.