Unemployment tax considerations for the COVID-19 pandemic

Mar 25, 2020

Businesses are currently facing layoffs, furloughs or reduced work forces amid the COVID-19 pandemic. From an unemployment standpoint, there could be an impact similar to that faced by employers during the great recession. The state unemployment agencies have already seen a spike in the number of unemployment claims being filed. Some state unemployment agencies have experienced system crashes in light of the on-line traffic to file for benefits. The following are a few considerations for employers facing an increase in unemployment claims and layoffs in light of the pandemic.

When unemployment claims are filed

When an unemployment claim is filed and the business is either the employee’s last employer, at the time of filing, or a base-period employer (defined as an employer who may have employed the worker at some point during the last 18 months), the business will receive an unemployment claim requesting details involving that worker’s separation.

  • For those who have significant employee populations, a business may contact the state unemployment agency’s “Rapid Response Unit.” Those units can coordinate an expedited claims process for employees to streamline the application process. The U.S. Department of Labor provides more detail concerning state rapid response units.
  • It is important a business respond quickly to any claim received. Response times will either expedite or delay an employee’s payment of unemployment benefits. The sooner a business responds the better.
  • As employees begin to file unemployment claims in response to the pandemic, many will be filing simultaneously, but employers should not assume all of the claims are related to COVID-19. During the great recession, it was not unusual to discover claims filed by employees who were still working, or those who otherwise might have been disqualified based on their prior separation from the employer. Fraudulent claims often depend on an employer’s level of diligence in reviewing the claim, or a reliance on a large volume of claims approved for all the same reason. This can result in unwarranted payments and cause a business’s unemployment tax rates to rise unnecessarily.
  • During periods of natural disaster, it is not unusual to see states declare a state of emergency, thus putting into effect Disaster Unemployment Assistance (DUA). This declaration means benefits will be paid, but will not adversely impact an employer’s unemployment tax account, causing an increase in rates. At the time of writing this article, no state has been declared a major natural disaster, nor has a national state of emergency been declared. FEMA has not authorized DUA benefits in any state related to COVID-19. DUA benefits, therefore, are not available at this time. Consequently, a business’s increase in unemployment benefits payments are likely to see an escalation of their unemployment rates in the future. There are a few states that are, however, not charging employers for COVID-19 claims.

When businesses face layoffs

Businesses still in operation, but facing the need to lay off workforce, should consider the following:

  • Pay all PTO and accrued sick time first.  Businesses do not have to necessarily cut ties with the employee until the PTO and sick time are exhausted. Be sure to review the recently enacted Families First Coronavirus Response Act relative to sick pay and family medical leave.
  • Consider a reduced-hour plan or job sharing. Job sharing means that two (or more) workers share the duties of one full-time job, each working part-time, or two or more workers who have unrelated part-time assignments share the same budget line. Such a strategy may increase morale and productivity over layoffs.
  • Consider Short-Time Compensation (STC), also known as work sharing or the shared-work program. This is a program administered by state unemployment insurance (UI) agencies that offers employers an opportunity to avoid layoffs who are experiencing a reduction in available work. Employers can avoid a layoff through a reduction in hours. Employees will receive a partial STC benefit commensurate with the percentage of reduction from their usual hours of work. STC plans generally last from for 26-52 weeks, depending on the duration of time established under state law.
  • Consider working staggered work schedules where half of employees work three days one week and two days the next while the other half of the employees alternate between weeks


Employers should routinely review and stay current on state and local updates to rules and regulations impacting unemployment. It is imperative that employers know if their states of operation have initiated a state of emergency or if they are charging for COVID-19 related claims. The situation continues to be in flux so having the latest information is critical. For questions about employment taxes and the COVID-19 pandemic, please reach out to your employment tax specialist.