The Basics of Unemployment Insurance
The modern multinational company is global in nature. This means that a lot of times work is sent overseas because it is simply cheaper to perform it there.
In these cases, employees often lose their source of income even though they are not at fault.
After such an event occurs, employees usually find it hard to make ends meet during a transition period when they are searching for another job.
It is a known fact that most Americans live paycheck to paycheck. Hence, when a job loss causes the loss of future paychecks, it can cause severe financial problems.
To help workers counter this problem, many countries in the world have started offering unemployment insurance. The United States is one of those countries.
In this article, we will have a closer look at the concept of unemployment insurance.
How Unemployment Insurance Works?
It needs to be understood that unemployment insurance is not an insurance product which individuals can opt for. In countries where unemployment insurance is present, this service is offered by the government. This means that every worker has to forego a part of their salary towards paying premiums required for providing unemployment insurance.
In the United States, this insurance is provided at a state level. Hence, the premium contributions, as well as unemployment benefits, can be different based on the state in which the worker is employed. However, as a thumb rule, it can be said that the payouts from insurance are designed to provide 50% of their regular wages to the workers.
There are many details about unemployment insurance which are commonly misunderstood. Some of them have been clarified below:
Details about Unemployment Insurance
- Unemployment insurance is meant to be temporary in nature. It is meant to support workers till they are able to find another job.
The median time for a laid-off worker to find another job is about 26 weeks. It is for this reason that unemployment insurance is usually provided for a period of 26 weeks.
If the affected worker has still not been able to find a job, then they are allowed to claim an extension for some more weeks.
However, it is important to realize that the benefits of unemployment insurance do not flow indefinitely. This is done to make sure that people do not voluntarily quit their jobs and start depending upon handouts from the government.
- It is important to know that a worker is eligible for unemployment insurance only if they have been fired for no fault of their own. If an employee has been terminated because of embezzlement, sexual misconduct or any other behavior which can be classified under the term ethical issue, then they may not have the right to obtain benefits from unemployment insurance
- The above statement mentions that employees must not be at fault for their dismissal. This statement applies only to ethics and general behavior. The performance of an employee does not hamper their ability to receive unemployment benefits.
In most cases, the state ensures that the benefits are paid out to people regardless of how they performed when they had a job
- Severance payments have no bearing on whether or not an unemployed person can claim unemployment benefits. The indemnity clause does not really apply in this situation. If a person has received severance payments, they can still claim benefits from unemployment insurance.
In the end, it is possible that they may have made a profit during the time that they were unemployed.
Usually, insurance only makes good the loss and prohibits making profits. However, this is not the case here.
As per the law, the severance payment is immaterial to the contract between the employee and that state. As long as the employee has paid in their contribution, they should be allowed to receive the benefits.
- Many times people who get laid off often start their own small business because of the extra time that they have on hand. This business may or may not be profitable.
Regardless of the profitability, starting a small business does not change the status of a worker from unemployed to employed.
As long as the worker is still looking for a job and is likely to take one if they received a reasonable offer, they could continue to collect unemployment benefits while still working on their small business
- Unemployment insurance benefits last till a person is able to obtain full-time work. If a person is working part-time, they can still continue to claim unemployment benefits. It is likely that the benefits may be reduced based on the amount of income that is being generated by the part-time job.
However, the law has been designed in a manner that ensures that laid-off employees are not encouraged to give up on a job and continue to remain unemployed.
- Lastly, it needs to be understood that the benefits from unemployment insurance are still considered income. Hence, unemployed workers are still expected to pay taxes if this income exceeds a certain level.
To sum it up, unemployment insurance is a state-mandated scheme in many parts of the world. This scheme provides various benefits to unemployed people as can be seen from the points mentioned above.
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The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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