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4 Reasons States Are Slow to Pay Covid-19 Unemployment Benefits

April 17, 2020, 10:00 AM

More than 22 million U.S. workers have filed new unemployment insurance claims in the last month, but their success at getting enhanced benefits provided through federal Covid-19 relief legislation partly depends on which state they call home.

State agencies that process and pay unemployment claims have been overwhelmed by the flood of applications, confused by new eligibility rules for self-employed and gig workers, and hampered by clunky technology.

“This is a massive lift to get this done,” Georgia Labor Commissioner Mark Butler said in a virtual press briefing Thursday. By Friday afternoon, the state expects to have received just over 1 million claims within a four-week period, more than in the worst year of the last recession, he added.

In the middle of that surge in traditional unemployment claims, “we’ve been asked by the federal government to basically create a brand new program that never existed before—that is the unemployment assistance for those that are currently self-employed,” Butler said. “Quite frankly, if the federal government or Congress would have asked pretty much any department of labor in any state in the nation if this was a good idea, they would have told them no.”

Amid the bureaucratic chaos, only three states—Louisiana, Rhode Island, and Texas—have begun processing and paying the new benefits available to self-employed individuals, gig workers, and other independent contractors, according to a U.S. Labor Department spokesperson. A total of 29 states have started paying the additional $600 weekly unemployment insurance benefit available to the newly jobless through the federal response to Covid-19, the DOL said Wednesday.

State officials across the country continue telling out-of-work independent contractors and some waiting for extra unemployment insurance money to wait a little longer. Here are some of the key reasons for the delays:

1. New Forms, Processes, Calculations

Traditionally, unemployment insurance was available for workers who were classified as employees and whose employers largely paid into states’ trust funds on their behalf. Federal coronavirus-relief legislation created a new pandemic unemployment assistance benefit for self-employed workers and others classified as independent contractors.

That forced many state agencies to reprogram electronic application systems that would normally reject claims filed by non-employees. They also have to develop and input a new set of criteria to determine who’s eligible for the new benefits. California’s Employment Development Department, for example, says it is developing the “necessary system programming, forms, processes, and procedures,” and won’t be ready to accept online applications for pandemic unemployment assistance until April 28.

“We have been working on making sure that we get Californians what they are entitled to under PUA, that we do it in a way that is reliable, that we clarify the options available to gig workers, and that we don’t set up applications that sit in a queue while we do not yet have the systems built to deliver the money,” California Labor Secretary Julie Su said in an April 14 public letter.

State agencies also have to figure out how to calculate the benefits they pay out. Many independent contractors might not have reliable records of quarterly income, which state agencies would typically get from employers to determine a claimant’s benefit amount.

California Gov. Gavin Newsom (D) on April 15 urged gig-economy companies like Uber Technologies Inc., Lyft Inc., and DoorDash Inc. to provide the wage data for ride-share and delivery drivers that he said the state needs to process the workers’ claims.

2. Who’s Eligible?

It is not just the computer systems that aren’t sure who’s eligible for the new assistance. The question is especially complicated in states like California and New Jersey, where officials say many gig workers should be treated as employees.

State agencies have complained of complex and confusing guidance from the federal Labor Department. Officials have said they aren’t clear on whether workers need to first apply for regular unemployment benefits and be denied before they can claim pandemic unemployment assistance.

There’s concern that if states misread the guidance and give benefits to ineligible workers, the federal agency could later deny funding for those claims.

3. Tech Not Ready for the Flood

The sheer volume of claims has played no small part in delaying processing and payment of benefits. In Tennessee, the state labor department said it has received 324,500 claims since March 15. In a typical month, the Volunteer State sees about 11,000 claims.

State agencies have had to add and reassign staff—Tennessee boosted its customer-facing claims processors from 20-something to more than 200—expand to seven-day-a-week operations, and upgrade computer systems to handle the volume. In some states, that means reprogramming a system that runs on a decades-old programming language few people still know.

At least a handful of states, including New Jersey, process unemployment claims through a system that runs on COBOL programming language. After New Jersey Gov. Phil Murphy (D) put out a call for help from COBOL programmers last week, IBM and the Linux Foundation launched initiatives to recruit programmers with the necessary experience to pitch in.

4. Cash Concerns

Costs are skyrocketing for states to operate their unemployment benefits systems. The exponential growth of new claims and expansion of benefits in some states has created a need to hire extra staff, in addition to upgrading computer systems.

Many states already have taken advantage of administrative-support funding for unemployment programs provided through federal Covid-19 legislation. The federal government has paid out $520 million to 46 states so far, and another $480 million is available, the U.S. Labor Department said on Wednesday.

Federal funds also are expected to cover much of the expanded jobless benefits in response to Covid-19. But many states’ unemployment trust funds don’t have enough money to cover more than a few months of traditional unemployment benefits for the level of claims experienced during the pandemic, according to a Tax Foundation analysis published April 9.

That analysis found six states had enough money to cover 10 weeks or less of benefits. The worst-funded state, California, only had enough money in its trust fund to cover 26 days of benefits, the Tax Foundation estimated.

The calculations were based on the 14.4 million initial and continuing unemployment claims filed nationwide through April 4, a number that has only risen since then.

With assistance from Ben Penn in Washington

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Lauinger at jlauinger@bloomberglaw.com

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