Employment Question of the Day: March 30, 2020
By Pamela Abbate-Dattilo and Edgar R. Ocampo
How will unemployment in Minnesota be impacted by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act)?
The CARES Act makes significant—but temporary—changes to unemployment compensation. The changes that will likely have the biggest impact on Minnesota are: (1) expanded coverage to individuals not typically eligible for unemployment, through December 31, 2020; (2) extension of benefits from 26 weeks to 39 weeks, through December 31, 2020; and (3) a federally-funded supplement of $600 per week for individuals receiving unemployment, through July 31, 2020.
Regarding the first change, self-employed individuals, independent contractors, individuals with a limited work history, and individuals who quit their employment as a direct result of COVID-19—who have traditionally been ineligible for unemployment benefits in Minnesota—are now eligible for state and federally-funded unemployment benefits. These individuals may submit a “self-certification” that they are unable to work due to the COVID-19 outbreak.
The second change is self-explanatory. Individuals will no longer be cut off from unemployment benefits at 26 weeks. If eligible individuals are still unemployed at the end of 26 weeks and attribute their continued unemployment directly to COVID-19 related reasons, they are eligible for an additional 13 weeks, for a total of 39 weeks in their benefit year (approximately nine months). Further, the CARES Act provides that states shall provide “flexibility” to individuals who cannot meet the “actively seeking work” requirement due to their inability to search for work due to directly related COVID-19 reasons, such as becoming ill or caring for an ill family member, getting quarantined, or having their movement restricted.
As for the third change, it is important to note that the $600 weekly federal supplement is provided in addition to existing state benefits and that state programs may not reduce their benefits to account for the federal supplement. The federal supplement is $600 per week regardless of an employee’s salary or wages just prior to becoming unemployed or furloughed. The federal supplement is the same for every state, taking into account that the 2020 maximum weekly benefit amounts range from $240 in Arizona to $795 in Massachusetts. In Minnesota, this means that a significant number of laid off or furloughed employees will actually receive more money from unemployment than they earned while employed, for a limited period of time. Both furloughed and laid off employees are eligible for state unemployment benefits and the federally-funded supplement.
Let’s take, for example, a Minnesota employee making $14 an hour. In Minnesota, the weekly unemployment benefit amount is approximately 50 percent of the employee’s average weekly wage up to a maximum of $740. An employee earning $14/hour working 40 hours a week averages $560 a week before taxes. The employee would receive $280 a week in unemployment benefits from the State of Minnesota. Now, taking into account the $600 Federal Pandemic Unemployment Compensation, the employee’s weekly unemployment compensation jumps to $880, significantly exceeding their $560 weekly earnings just prior to a layoff or furlough.
Now let’s use a Minnesota employee with an annual salary of $50,000. This employee makes approximately $962 a week before taxes and would receive approximately $481 a week in state unemployment benefits. Adding in the $600 federal supplement brings the employee’s weekly unemployment compensation to $1,081, again exceeding their $962 weekly earnings.
By our math, employees who were making $62,000 or less, annually, in Minnesota will receive more through unemployment from now through July 31, 2020, and if applicable, during the 13 week extension of their unemployment benefits.
Employers considering a furlough, pay reduction, or layoff should carefully weigh each option in light of the CARES Act’s provisions for substantial additional unemployment benefits and forgivable loans.
For example, employers who need to downsize their workforce—but anticipate needing to bring back a significant number of employees in a month or two—may opt for a furlough over a layoff because it may be easier to replace workers by calling them back to work than hiring anew. It remains to be seen how recruitment and hiring will be impacted in the early summer months by these unprecedented increases to unemployment compensation.
Additionally, employers implementing a furlough may want to rethink the wisdom of allowing or requiring employees to use their accrued paid time off, since that will disqualify employees for unemployment compensation during the period covered by the paid time off. Depending on the employee’s income level, payment of PTO may no longer be necessary to ensure an employee has full payment of wages during unemployment.
Click here for a more in-depth article we published yesterday on the unemployment-related provisions of the CARES Act.
If you have questions, contact your Fredrikson and Byron Employment & Labor attorney.