112: Unemployment Insurance Benefit Qualification Rule Change

I’m sure you’ve also heard UI referred to as FUTA and SUTA which stands for federal unemployment tax act and state unemployment tax act. It’s even referred to as FUI and SUI, meaning federal unemployment insurance and state unemployment insurance.
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An important unemployment insurance rule change on March 31, 2017.

On episode 109, Robert Attridge taught us some basic aspects of the state unemployment insurance system and how you can manage your cost.

I’m going to say UI for unemployment insurance, going forward.

The UI system is a mandatory federal and state run system for paying income replacement benefits to the involuntarily unemployed. The UI system was created out of the Social Security Act.

I’m sure you’ve also heard UI referred to as FUTA and SUTA which stands for federal unemployment tax act and state unemployment tax act. It’s even referred to as FUI and SUI, meaning federal unemployment insurance and state unemployment insurance.

So what is this? Is it a tax or is it insurance. The answer is Yes. It’s an excise tax that funds an insurance like system. It’s a freak of nature, a hybrid.

The Internal Revenue Code says it like this: There is hereby imposed on every employer, for each calendar year, an excise tax, with respect to having individuals in his employ.

It’s a tax on labor.

As Robert pointed out, your state UI rate is controllable, to a certain extent.

Each state has a minimum and a maximum rate so even if you never had a claim, you’ll still have to pay in at the minimum rate. And even if all your terminated employees collect UI benefits you’ll never pay more than the max.

Unemployment insurance benefit qualification rule change:

So that’s just a little overview of the system. Now let’s talk about this benefit qualification rule change.

In 2012, a new law was passed called the Middle Class Tax Relief and Job Creation Act of 2012. This new law allowed states to test applicants for drugs as a condition of eligibility for unemployment benefits. So now benefits could be denied for failing the test, but only if one of the two following conditions applied:

  1. If the employee was terminated from their last job due to the unlawful use of a controlled substance, or;
  2. If the only available “suitable” work from them was a “occupation” that regularly tests for drugs.

The first rule is easy enough to understand. If the reason they were terminated was drug use then, you’re not going to get UI benefits.

But what is an occupation that regularly tests for drugs? What does that mean?

Well, the Department of Labor (or DOL) was responsible for creating a final rule establishing a list the “occupations” that regularly test for drugs. It took them until September 30, 2016 to implement their list.

The rule defined “occupation” as a position or class of positions that are required, or may be required in the future, by either federal or state law, to be drug tested. The rule listed the following five

  1. Occupations where testing is required by state or federal law.
  2. Occupations that require carrying a firearm.
  3. Motor vehicle operators carrying passengers. Apparently it’s ok for drivers who don’t have passengers to take drugs.
  4. Aviation flight crew members and air traffic controllers, and;
  5. Railroad operating crews.

The Trump Administration and the new leadership of the DOL believe the list contradicted congressional intent by really limiting the State’s ability to drug test.

And so, on March 31, 2017, President Trump signed legislation, The Ready to Work Act of 2016, allowing the states to decide for themselves.

Now, the States will have a lot more flexibility.

What does this mean for you? Hopefully it will translate to lower UI tax rates. But in order to give yourself the best opportunity to take advantage of this, you should establish a drug free workplace policy and require pre-employment drug testing.

NELP is not happy:

Not everybody is happy about this.

The National Employment Law Project published a policy brief in February 2017 calling this “An Unconstitutional Solution in Search of a Problem”.

They listed 5 reasons why this change is a bad idea.

The first reason, it’s unconstitutional.  

The UI scheme is forced on employers. The State sets the rates, and they determine the benefits.

If your State wants to require benefit recipients to pass a drug test then I’d think it’s well within their rights to do that. But hey, I’m no lawyer.

Look, no one is forcing your former employee to apply for UI benefits.

Besides, if the federal government can force you to buy health insurance, I’m pretty sure the State can require you to take a drug test before they pay you money from a “policy” that you didn’t purchase.

Don’t get me wrong, if it truly ISN’T a violation of the US Constitution to force individuals to buy insurance – or anything else for that matter, then it damn well should be.

I actually think it is, but the federal government has long since trampled all over the Constitution and I doubt that trend will be reversed.

NELP’s second reason is that State-administered drug testing is redundant and needlessly shifts employer costs to the states.

I’m not sure what they’re getting at here. They say that 20 states already deny benefits for job loss related to drug use. They also say that “virtually all states treat a drug-related discharge as disqualifying misconduct even if it is not explicitly referenced in their discharge statutes.”

Well that’s good. And now it won’t matter what they are terminated for, if they are using drugs while unemployed they won’t be able to collect benefits. This is good because their drug use is most likely preventing them from getting a new job and off unemployment. This assumes that State adopts that position.

Their third reason is that State-administered drug-testing is a poor investment of public funds.  

I’ll agree with that but, government wastes a lot more on things that have less value.

Fourth, they say that Jobless workers have earned the right to unemployment insurance.

This one makes me laugh.

UI benefits aren’t an employee right. The “premium” wasn’t paid for by the employee. However, in some states they pay a small portion.

An finally, the fifth reason: it promotes negative stereotypes of unemployed U.S. workers.

Do they mean the ones who use drugs? Is that a protected class now, a minority group that deserves special protections? Whatever…

Robert J. Ringer wrote a book in 1974 called Restoring the American Dream. In his book he explained his quick as hell full employment plan. He said eliminate all unemployment benefits and people who don’t have jobs will find them quick as hell.

If employers want to provide unemployment insurance let them purchase it from the free market or fund their own program, and If employees only want to work for an employer that provides UI, they’re free to do that.

About the author, Thomas

I have 20 of years insurance industry experience in C-level management, focusing on all aspects of workers compensation, risk management, loss control, employee benefits, HR, payroll and professional employer organization (“PEO”) operations. Currently, I am the owner and CEO of Humanly HR, and founder and host of SmallBiz Brainiac; a podcast providing employer intelligence to small business owners.

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