State Unemployment: A Look Back as a Way to Look Forward

Marshall Whittey, Regional Sales Director, First Nonprofit

The last year and half through COVID-19 has brought on a great many changes and challenges to our everyday lives, as individuals, employees, and as employers. Despite all the challenges, it is important that we continually move forward and prepare for the future – yet it is just as important to understand the past in our preparation for the future. There has been so much coverage surrounding unemployment and the impacts on the individual that in many cases we have overlooked the impacts on employers. A brief look at the history of unemployment insurance shows how times of strife can also impact employers.

The Unemployment System as we know it did not exist prior to 1935 despite several states proposing their own laws as early as 1916. Thus, there was no real safety net for workers that lost their job to no fault of their own, which in many cases left them helpless in providing for their families. It wasn’t until the Social Security Act of 1935 was drafted and passed that the mechanisms were established as a way forward to help prevent the negative effects of unemployment. This was done through requiring states to establish and manage State Unemployment Insurance Trust Funds, which would be financed by employers through payroll taxes. The state would then pay unemployment insurance (UI) benefits to individuals that have lost their job to no fault of their own.

The State Unemployment Insurance Trust Funds from which claims are paid are managed by each individual state through the payroll tax rating system set-up by each state also known as State Unemployment Tax Assessment (SUTA). The manner and amounts paid to individuals who have lost their job to no fault of their own is determined by each state as well as the manner and amount of SUTA employers are set to pay annually. As mentioned above, the states are in control of how the UI trust funds receive and distribute the funds in which they manage. It is only through federal acts or law changes that the federal government can affect change on state UI laws and trust funds. Since the Great Depression, we have seen several of these acts such as:

  • The Temporary Unemployment Compensation Act of 1958, which created State Extended Benefits providing additional benefits over the standard weeks provided by the states at times of high unemployment.
  • The Middle-Class Tax Relief and Job Creation Act of 2012, which made additional changes like unemployed individuals can only become eligible for benefits if they are currently seeking work, are able to work, and are available to accept any reasonable job offer.

Pre-COVID-19, employers could expect a certain amount of predictability within their state unemployment systems, i.e., unemployment benefits typically being awarded to individuals that lost their job to no fault of their own or at least being able to protest a claim in which the employer disagrees with the former employees’ ability to file and receive unemployment benefits. The shutdowns created a perfect storm of chaos for state unemployment systems with initial claims unemployment claims filed nationally reaching 77.5 million in a one-year period from 3/21/20-3/20/21 versus 51.08 million initial claims being filed during two years of the “Great Recession” from 12/1/07-12/31/09 (source: Coupled with sheer volume of claims filed that created significant delays within the state systems, employers were faced with states eliminating the following: waiting weeks, work search requirements, ability and availability to work, and an individual’s not becoming unemployed to no fault of their own, thereby impacting the consistency that employers had come to expect and their understanding of unemployment.

Historically, most of the acts that have impacted unemployment were driven by severe economic downturns or recession, but COVID-19’s impact with unprecedented closures forced Congress to act to provide a safety net for both businesses and individuals impacted, resulting in the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 and the American Rescue Plan Act (ARPA) in 2021. The sections of the CARES Act impacting unemployment provided expanded unemployment benefits in the form of additional benefit weeks, payment of benefits to those that would normally not qualify (gig workers and self-employed), and for the first time ever, additional benefits over and above state awarded benefits – initially $600 additional per week through the CARES Act, then reduced to $300 per week through ARPA, which is set to expire on September 5, 2021. Despite the State UI Trust Fund and the employers participating in the state funds not being liable for the additional benefits, they will still see the lasting impact of COVID-19 related closures. State funds have been depleted and, in many cases, decimated by the unprecedented amount claims in such a short period of time. The historic number of individuals fully exhausting their standard unemployment benefits combined with the additional funds has resulted in the majority of recipients at full wage replacement or receiving an income boost as benefits exceeded prior earnings. Employers in the state fund can expect to see their SUTA costs rise as the states rebuild their trust funds to pre-COVID levels.

Reimbursable employers outside of North Carolina, despite both Act’s providing emergency unemployment relief for governmental entities and 501(c)(3) nonprofits, saw their costs skyrocket in 2020 and into 2021 as they experienced claim levels they could never have anticipated or prepared for to no fault of their own. Thankfully, the advocacy of the North Carolina Center for Nonprofits and other state associations helped NC state legislators draft a bill that further assisted the reimbursable employers with COVID-19 related claims in 2020. As the federal subsidies come to an end this September, employers’ concerns will shift to secondary claims filed by the long term unemployed.

As the aspects of the ARPA that impact unemployment come to an end on September 5, 2021, many employers feel hopeful as they will no longer be competing with enhanced unemployment benefits to fill available positions. This coupled with an economic rebound are reasons to feel confident for the future, but there are approaching headwinds for employers. Reimbursing employers will start to see 100% claims liability as they did prior to COVID-19. All employers will face the potential of higher costs with the proposed changes introduced through the Senate Finance Committee, Senator Ron Wyden, and Senator Michael F Bennet. A few of the proposed changes to the current UI System would require all states to offer at least 26 weeks of unemployment, thus changing the Tiered System in NC. This would add 6 weeks in times of high unemployment and as many as 14 weeks in times of low unemployment in NC, greatly impacting all employers as their liabilities will increase significantly over the current structure. It would also look to require a state to implement 75% wage replacement for all unemployed workers, cover part-time workers that quit their jobs with good cause, and pay workers for their first week of unemployment, “the waiting-week”. Again, such changes would impact benefit amounts that will eventually be passed on to the employers through SUTA or higher reimbursement costs for the reimbursing employers.

As we move forward into 2022 and beyond, we remain hopeful that things get back to some semblance of normal. For those employers paying UI taxes, be mindful that with recovery will come the need to prepare for rising costs as the state funds rebuild to pre-COVID levels. For reimbursing employers, the secondary claims as mentioned prior as well as the federal administration’s desire to drastically expand unemployment to near a full wage replacement program will be the two largest items to monitor. In doing so, we best prepare for the future.

Marshall Whittey is regional sales director with First Nonprofit, working with program partners, insurance brokers, members, and prospective members around the country. Prior to joining First Nonprofit in 2010, Marshall worked in sales, sales management, and project management. He maintains Property & Casualty insurance licenses and uses his experience in the insurance industry to introduce the value of risk transfer alternatives. He travels extensively educating First Nonprofits’ insurance agent and broker network, presenting seminars with association partners, and meeting with individual employers and their representatives about the options available in managing their unemployment insurance obligations. Marshall earned a BS with a concentration in elementary education from the University of Nevada.


Through the Center’s partnership with First Nonprofits, members can reduce expenses and manage unemployment insurance through several different programs and products. Learn more.