Unemployment Compensation: Your Financial Lifeline

By: Bob Skladany | January 26, 2009

You’ve seen the headlines: “More Than 2.6 Million Jobs Lost in 2008; 524,000 in December Alone”

 “Unemployment Rate at 7.2 Percent, Highest in 16 Years.”

The numbers are bad and getting worse. Jobs are vanishing in record numbers, housing values are falling, foreclosures are a real threat for many, savings and investment values have declined 30 to 40 percent over the past six months, and living costs—particularly health care costs—continue to escalate. Now that’s a recession.

Right now, about 11.1 million people are unemployed, and millions more have seen their hours cut. The average work week is now 33.3 hours, the lowest since 1964, according to the Bureau of Labor Statistics. Between 4 and 5 million people are currently receiving unemployment compensation benefits.

At a certain point, the numbers lose their meaning. For many mature workers, there is a very real fear of being out of work and not being able to find a new job. In the midst of this frightening prospect, there is one bright spot, and that’s unemployment compensation. Some older workers may find themselves filing for unemployment benefits for the first time in their lives.

Let’s get one possible concern behind us immediately. Some people still believe that unemployment compensation is a handout or a welfare plan, and that no self-respecting worker would file for benefits. This is wrong-minded thinking. Employers pay into a state unemployment fund, which in turn pays the unemployment benefits. Federal benefits are funded through your federal income taxes. This is an insurance plan in the event of job loss, and there is no shame in filing. It’s an important program to help you keep your financial footing while unemployed.

What Are the Benefits?
In most states, the maximum state benefit coverage period is 26 weeks. Through federal funding, states may provide extended benefits for up to another 13 weeks or more in states with high unemployment.

Benefit amounts vary state-to-state but are generally one-half of earnings, up to a weekly maximum payment. These maximums vary widely. New York’s maximum is $405 per week while Arizona’s is $205.

Some workers who are already receiving Social Security retirement benefits may have their unemployment payments further reduced. In addition, unemployment compensation benefits are subject to state and federal income taxes.

If you lose your job, remember to ask about continuing your health insurance benefits. You may be able to extend your health coverage from your prior employer, though doing that can be expensive. Ask the state unemployment office about health insurance alternatives.

You should file for benefits immediately, regardless of the terms of your layoff or termination. You can apply in person, by phone, and in some states, online. Even if you don’t think you’re eligible, file promptly and let the officials decide. Your application may be delayed several weeks because of the workload at the unemployment offices. Don’t delay. Applying for unemployment compensation should be one of your priorities if you are laid off.

Eligibility Requirements
Again, these will vary somewhat by state, but here are several key factors:

1. Work and Earnings History – You will have to meet requirements for length of employment and earnings amounts.

2. Reason for Job Loss – You must have lost your job through no fault of your own. Even if you are told you were terminated for cause, still file. Some employers may try to discourage you from filing because it could raise their unemployment compensation rates. The state official will make the final determination. You may be eligible even if terminated for cause.

3. Looking for Work – You will have to verify that you have looked for work during the period in which you collect benefits.

4. Self-Employed – Sorry, but self-employed individuals who are out of work aren’t eligible for benefits.

5. Legal Worker – You must be a U.S. citizen and legally able to work in the United States.

In some cases, you may be eligible for benefits if you quit for “good cause” and your employer failed to respond to your complaints. Even if you are part-time or have your work hours reduced, you may be eligible for reduced benefits. Remember rule number one: res for benefits and let the officials decide.

How to Apply
Each state has an agency dedicated to administering unemployment compensation.You can apply by phone or in person. Make sure you have the following:

1. Employer Information – Bring pay stubs, addresses, and phone numbers with you when you file.

2. Social Security – Have your card or number available.

3. Earnings History – Be prepared to answer questions about your work and earnings history for the most recent two years.

4. Paperwork – If you received any paperwork from your employer when laid off, have that handy.

A word of caution: The Internet is full of organizations that prey on people trying to file for unemployment. These scammers’ Web sites often resemble government sites and have fancy seals and titles. They claim to offer “free” unemployment grants of $30,000 or legal services to “get the benefits you deserve.” You should never pay anyone to help you file for unemployment. The best rule to follow is to deal only with your actual state agency and never to deal with a Web site that carries a .com suffix.

You can expect a fairly prompt determination on your eligibility. If you are denied, there is an appeals process, and you should always take advantage of it. Remember, some employers may claim you quit or were fired for cause in hopes you will not collect. If your claim is denied, you have a right to appeal, and it may go in your favor. Before you hire a lawyer to represent you in filing your claim or for an appeal, be certain you understand his or her fees and conditions. Hiring a lawyer to represent you may not be necessary or financially sound.

Can I Work “Under the Table”?
Some people are tempted to work for cash payments while they also collect unemployment compensation. You will be asked to confirm if you’ve had any earnings on a weekly or biweekly basis—under the table or otherwise. Don’t lie about it. Your benefits may be reduced somewhat, but failing to report earnings constitutes criminal fraud and carries extremely severe penalties. It’s not worth the risk.

Your Job Search
The state office that administers unemployment benefits can also direct you to job-search resources. Some of these can be valuable and may include retraining programs and funding. There are numerous state and federal programs to assist you with your transition and job search. An effective job-training program for lower-income older workers is the Senior Community Service Employment Program. Other training and assistance programs are the U.S. Trade-Adjustment Assistance Program for workers whose jobs have been eliminated or moved to another country, and the Alternative Trade-Adjustment Assistance Program, designed specifically for older workers who have lost their jobs to foreign competition.

The employment services offered by state government agencies have improved considerably in recent years. Spend some time at your local office to learn more about the wide range of resources and services available.

Unemployment benefits will not replace all of your lost income, but you should have some peace of mind that you will continue receiving benefits for several months. This may be what you need to get by until you find that new job.