The Unemployment Insurance Program , commonly referred to as UI, provides individuals, who lose their jobs through no fault of their own, with weekly unemployment insurance payments. UI is a nationwide program created to provide partial wage replacement to unemployed workers while they conduct an active search for new work. Payments made directly to the individual ensure that at least some of life’s basic necessities, such as food, shelter and clothing, can be met while they actively seek alternate employment.
UI is a federal-state program based on federal law, but it is executed through state law. Employers finance UI through tax contributions. In California, the EDD is the agency responsible for administering UI according to guidelines established by the UI Code and the California Code of Regulations.
Employer and employee coverage. For purposes of UI, a covered employer is defined as a person or legal entity that hires one or more persons to work for a wage, salary or other compensation. Employers include sole proprietors, joint ventures, partnerships, co-ownerships, corporations, S corporations, limited liability companies, limited liability partnerships, nonprofit organizations, associations, trusts, charitable foundations, public entities and state and federal agencies. Private households, local college clubs and local chapters of fraternities and sororities that employ workers to perform household services are household employers.
When an organization employs one or more employees and pays wages in excess of $100 in a calendar quarter, they become a covered employer. Wages are defined as compensation for services performed, including but not limited to cash payments, commissions, bonuses and the reasonable cash value of nonmonetary payments for services, such as meals and lodging.
All employers conducting business in California are subject to the employment tax laws of the California Unemployment Insurance Code (CUIC) . After a business hires an employee and pays in excess of $100 in a calendar quarter, the business is considered a covered employer and must complete and submit a registration form to the EDD within 15 days after paying wages. Employers are responsible for reporting wages paid to their employees and paying UI Tax and Employment Training Tax (ETT) on those wages, as well as withholding and remitting SDI tax and California Personal Income Tax (PIT) due on those wages. When subject, an employer must report wages for that year and the following year, regardless of the amount of wages paid.
An employee includes all of the following:
∙ Any officer of a corporation.
∙ Any worker who is an employee under the usual common-law rules.
∙ Any worker whose services are specifically covered by law.
An employee may perform services on a temporary or less than full-time basis. The law does not exclude services from employment that are commonly referred to as day labor, part-time help, casual labor, temporary help, probationary labor or outside labor.
Employee or independent contractor. An employer/employee relationship exists when a person who hires an individual to perform services has the right to exercise control over the manner and means by which the individual performs those services. The right to control, whether or not exercised, is the most important factor in determining the relationship. Tax decisions by the California Unemployment Insurance Appeals Board (CUIAB) are based on the right to control factor along with the examination of secondary factors, when necessary.
Employers who have incorrectly treated employees as independent contractors may be liable for back taxes, penalties and interest. To help employers determine if they have properly classified employees, the EDD has several resources available:
∙ Determination of Employment Work Status for Purposes of State of California Employment Taxes and Personal Income Tax Withholding . Provides a series of questions regarding the employer’s relationship with employees. After an employer completes and returns this form, the EDD will provide a written determination stating whether the employer’s workers are employees or independent contractors based on the facts provided.
∙ Information sheets. Provides information on general and industry-specific issues.
∙ Payroll tax seminars. Information on employee and independent contractor issues.
∙ Web-based seminars. Information on employee and independent contractor issues, available in both English and Spanish.
∙ Live assistance. Help on worker classification issues is available through the Taxpayer Assistance Center.
Eligibility requirements. An individual who files for unemployment insurance benefits must meet specific eligibility requirements before benefits can be paid. Individuals must meet all of the following criteria:
∙ Have received enough wages during the base period to establish a claim.
∙ Be totally or partially unemployed.
∙ Have become unemployed through no fault of their own.
∙ Be physically able to work.
∙ Be available for work, which means ready and willing to immediately accept work.
∙ Be actively seeking alternative work.
∙ Meet eligibility requirements for each week in which benefits are claimed.
∙ Be approved for training before training benefits can be paid.
Wages needed to establish a claim. Employers report wages to the EDD for each employee. The department uses this information to decide if an individual earned enough wages in a base period to establish a UI claim. A base period is a specific 12-month period. For example, if a claimant files a claim that begins in April, May or June, the claim is calculated based on wages paid to the claimant between Jan. 1 and Dec. 31 of the prior year.
The minimum weekly benefit amount is $40, and the maximum weekly benefit amount is $450.
Reason for unemployment. The reason an individual is out of work can affect his or her eligibility for benefits. The EDD interviewer obtains and documents information about the separation from the employer and decides, according to laws and regulations, if the person is eligible to collect benefits. The department mails a notice to the claimant if he or she is not eligible for benefits. The department mails a notice to the employer if the employer responded to the notice of claim filed in a timely manner. The notice advises the employer about whether the claimant is eligible or not, and whether the employer’s account will be charged for benefits paid to the former employee. Either party can disagree with an unfavorable decision and file an appeal.
An individual must complete a claim form every two weeks, sign and date the form, and return it to the department for payment. If the information on the form shows that the individual did not meet eligibility requirements, the department will schedule a telephone interview. Based on the information obtained, benefits may be reduced or denied. An individual who disagrees with the decision to reduce or deny benefits may file an appeal.
Claim notices. The EDD and employers are partners who work together to exchange information that is necessary in determining eligibility for UI benefits. Notices are the primary method by which employers can provide eligibility information to manage their reserve accounts and assist the EDD in making proper eligibility decisions.
Notice of unemployment insurance claim filed. A notice is mailed to the very last employer when a claim for UI benefits is filed. It provides general information about the claim, including the reason the claimant states he or she is no longer working. This is the first opportunity for employers to provide eligibility information, by responding in writing and mailing their response to the notice within 10 days of the mail date located at the top of the notice. A timely employer response guarantees the following:
∙ A written Notice of Determination/Ruling from the EDD.
∙ Employer’s rights to appeal EDD’s determination.
Determination and ruling notices. This notice advises employers of EDD’s decision regarding a claimant’s eligibility for UI benefits. It provides a reason for the decision, the applicable section of the UI law, charges to the employer’s reserve account and appeal rights. Appeals must be in writing and received within 20 days from the mail date located at the top of the notice. Failure to respond to the Notice of Unemployment Insurance Claim Filed means the following:
∙ Employer is not entitled to receiving a Notice of Determination/Ruling.
∙ Employer cannot appeal the EDD’s decision.
Wages used for unemployment insurance claim notices. This notice is mailed to all base period employers after the first payment has been made on the claim. It advises employers of the percentage of benefits chargeable to their employer reserve account. This is the second opportunity for the last employer and the first opportunity for base period employers (who were not the last employer) to provide eligibility information by responding in writing and mailing the response within 15 days from the mail date located at the top of the notice. Employers can request a ruling to have the liable charges relieved from their reserve account, and the EDD will determine whether charges are assessed.
New employee registry notices. This form is mailed to employers to gather information about a new employee who may be collecting UI benefits. The EDD needs to verify the start work date (not the hire date, if it is different from the start work date) of the new employee to cross reference it to weeks when UI benefits were claimed. The information provided by employers prevents potential overpayments to claimants. More importantly, it protects the employer’s reserve account from being liable for benefits after a claimant has returned to work. Employers are required to respond within 10 days of the mail date located at the top of the form.
Benefits audit notices. This form is mailed to employers who reported wages in a week for which claimants also received UI benefits. As part of the audit process, the EDD requests wage information for specific weeks that claimants may have worked then uses the information to identify claimants who may have improperly received benefits for those weeks. Claimants who failed to report earnings while collecting benefits are liable for an overpayment. Employers are required to respond within 10 days of the mail date located at the top of the form.
Request for additional information notices. This form is mailed to employers to verify information provided by the claimant when a UI claim is filed. Specifically, the EDD is attempting to confirm the identity of the claimant. Employers do not have to complete the form if the information is correct, the claimant is no longer working for them and there is no reason to suspect the information provided is potentially fraudulent. Employers who do respond must complete the form and mail it back within 10 days from the mail date located at the top of the form.
Alternate base period program. The Alternate Base Period (ABP) program requires the EDD to use more recently earned wages to calculate monetary eligibility for new UI claims for unemployed individuals who do not qualify for a UI claim using the Standard Base Period.
The Standard Base Period uses the wages earned in the first four of the last five completed calendar quarters prior to the beginning date of the UI claim. The Alternate Base Period uses the wages earned in the four most recently completed calendar quarters.
Meals and lodging. Meals and lodging that are provided free of charge or at a reduced rate to an employee are wages. If employees are covered under a contract of employment or union agreement, the taxable value of meals and lodging cannot be less than the estimated value stated in the contract or agreement. To determine the value of lodging, multiply the amount the property could be rented for (ordinary rental value) by 66 2/3 percent (0.6667).
Purchase, sale, transfer or change of ownership. Registered employers must report any change in business status (for example, any change in business name or legal entity, such as a change from partnership or limited liability company to corporation).
If an employer purchases another business that has employees (or a business that previously had employees), they may be held liable for the previous owner’s EDD liability if a Certificate of Release of Buyer (DE 2220) is not obtained from the Taxpayer Assistance Center.
Until a DE 2220 is issued, the buyer (employer) must hold in escrow an amount sufficient to cover all amounts the seller owes to the EDD, up to the purchase price of the business. The DE 2220 is issued after the seller pays all amounts owed to the EDD.
Successor employer. A successor employer is an employer who has acquired all or part of another employer’s (predecessor) business and continues to operate the business without substantial reduction of personnel resulting from the acquisition. The successor employer may receive all or part of the predecessor’s UI reserve account balance by applying for a reserve account transfer. The transfer may qualify the successor for a lower UI tax rate. The successor employer must still register with EDD if they do not already have an existing EDD employer account number.
Business name changes. To report a change in business name, corporation name, personal name (i.e., marriage) or change in ownership of the business, an employer can do the following:
∙ Complete the EDD’s Change of Employer Account Information form.
∙ Order DE 24 forms by contacting the Taxpayer Assistance Center at (888) 745-3886.
No longer have employees. If an employer no longer has employees and will not be reporting wages in any future quarter, they must send a final form DE 88 with payment, along with a DE 9 and a DE 9C form. Employers may inactivate their account on the EDD’s e-Services for Business website. If an employer does not currently have employees but may have employees in future quarters, they are still required to file a DE 9 form.
Closing a business. If an employer closes a business, they are required to file a final DE 88 form with payment, as well as a DE 9 form and DE 9C form within 10 days of ceasing business operations, regardless of the normal due dates. Employers may inactivate their account on the EDD’s e-Services for Business website.
Mass layoffs and wage notices. A Wages Notice provides general information to EDD staff regarding separation status and payments received by employees at the time they become unemployed. The notice advises EDD staff as to whether the payments will affect the claimants’ unemployment insurance benefits. A Wages Notice reduces the number of calls to employers and encourages consistent decisions from EDD staff concerning these payments.
The EDD will issue a Wages Notice when all of the following criteria are met:
∙ Definite or indefinite layoff, including reduction in force, closures, holiday or vacation shutdowns, and so forth.
∙ The layoff affects 10 or more employees.
∙ The employer will pay the affected employees post-employment payments, other than severance pay, such as in lieu of notice pay, wage continuation, pension, bonuses and so forth.
Employers may request that a Wages Notice be issued for the company by completing the Wages Notice request forms that are appropriate for their situation. In some cases, if the employer is paying different types of payments, more than one form may need to be completed. The completed forms may be faxed or mailed to the EDD as noted in the instructions.