Unemployment benefits are funded not by employees, but by the companies for which they work. Employers pay both state and federal taxes on a portion of the wages paid to each employee. When a former employee files an unemployment claim, a determination is made regarding whether or not the employer is chargeable. A chargeable employer is one whose unemployment account is affected by the benefits awarded to eligible former employees.
When an individual files for unemployment benefits it requires three types of decisions. Two decisions have to do with the individual's eligibility for benefits. Monetary eligibility is determined by the wages earned in an established base period. Non-monetary eligibility is based on the reason the individual was separated from the employer. Additionally, a claimant is required to meet certain requirements including the ability to work, availability and a requirement to continue to look for work.
The third decision is a determination of whether or not an employer is chargeable for the benefits paid. Decisions about chargeability do not determine whether or not the individual will receive benefits. The chargeability decision only determines whether the employer is chargeable for benefits paid or whether the charges are absorbed by the Trust Fund and thus are paid from the contributions of all employers.
State departments of labor have two options for holding employers liable for unemployment costs:
One is the tax method, in which the majority of employers pay unemployment taxes based on a rate that is determined by the company history, including claims filed and timeliness in paying required taxes. Under this plan, a minimum payment applies and taxes are capped at a maximum rate. Rates for individual employers may vary each year based on company history. The other method is the reimbursement method. Under this plan, the company is not required to pay a tax, but will reimburse the state Department of Labor whenever benefits are paid to a former employee. Under this plan, the employer covers the entire the cost of the benefits with no maximum.
When an individual files claim for unemployment benefits, a "base period" is established. Benefits are based on the wages earned during this base period. A "major base" employer is the employer that paid the most wages to the claimant during that base period. This period may include either the first four of the last five calendar quarters or the last four completed quarters prior to when the claim was filed. It is the major base employer who may be chargeable for benefits paid to a former employee.
If an employee is separated from an employer through no fault of his own, the employer is generally determined to be chargeable. However, some circumstances will result in the company not being chargeable. Some of these circumstances include: the employee was discharged for misconduct related to work; the employee left voluntarily without good cause; the separation was due to a natural disaster; the employee left a part-time position for a position that could reasonably be expected to increase wages.