What is Unemployment Insurance?

During these unpredictable and unprecedented times, millions of Americans and people around the globe are out of work because of mandatory closures of businesses. Across most industries, the unemployment rate has skyrocketed. 

Unfortunately, until our global health crisis is more controlled, there’s no telling what the unemployment rates will look like in the long run. Even short term, people are finding themselves without a job sometimes for the first time in their life.

 If you’ve found yourself in this position, you may be starting to think about filing for unemployment, but aren’t sure what the process entails. 

How does unemployment work and what is unemployment insurance? How do you file for unemployment? How much do you make on unemployment? And does unemployment hurt credit?

These are all valid questions that most of us are thinking about. Unemployment insurance provides funds for workers who qualify under a variety of conditions. Through the state-federal program, eligible workers are able to get cash during the time that they are not working. Again, there are eligibility requirements that you have to fit in order to qualify for the benefits of unemployment insurance. 

But as most of our worlds have been flipped upside down during this worldwide crisis, many people are qualifying for unemployment because they are out of work at no fault of their own.

How to File for Unemployment

If you’re wondering how to file for unemployment insurance, the answer differs depending on the state in which you work in. 

You first have to file a claim with your state’s insurance program. It's important to remember that it should be the state that you were last working in, so if your place of residence is different from your state of employment, take that into consideration. Again, each claims process is different, but in general the application to file for unemployment will ask personal identification questions, like driver’s license number, social security number, and mailing address to name a few. 

They also ask questions about your most recent employer and oftentimes your employment history prior to your most recent work. This way they can validate that you are no longer working for that employer and are in fact unemployed. 

Knowing when to file for unemployment can be a challenge for people during this particular pandemic because it’s difficult to know if you will be employed once businesses are back up and running. 

Your employer still may not be able to tell you if you have a job waiting for you after this crisis dies down, so you aren’t sure how long your employment will last. The answer to when to file for unemployment insurance is…as soon as possible. As soon as you can apply after becoming unemployed is when most states suggest you start the process in order for you to get benefits quickly. 

Applications will ask when your last day of work was, so you can actually file the same day or the day after becoming unemployed.

Requirements of Unemployment Insurance

Because filing a claim for unemployment insurance is different in every state, there isn’t a set of requirements that is nationwide. However, there are a few general guidelines that make a person eligible for unemployment insurance in most places. 

One is that your reason for being unemployed cannot be your own fault. For example, quitting a job because you didn’t get along with your coworkers is a reason that you are unemployed and  was your own choice and therefore your fault. 

However, reasons like an injury, disability, company lay off or in this case, a global crisis that shut down your place of business or made working unavailable, are outside of your control. 

Secondly, you have to meet a requirement for wages and/or time worked to establish a base period. Someone who has worked as a waitress for 6 months and has been laid off because the restaurant couldn’t pay its bills has been making at least minimum wage and therefore likely has established a norm as far as an income is concerned. 

Other eligibility requirements may include that you are willing and able to work if work becomes available to you and that you are actively seeking a job.

Additional federal laws have also provided states with the opportunity to pay those who file for unemployment insurance benefits for reasons related to COVID-19. According to the U.S. Department of Labor, these include:

“An employer temporarily ceases operations due to COVID-19, preventing employees from coming to work; An individual is quarantined with the expectation of returning to work after the quarantine is over; and an individual leaves employment due to a risk of exposure or infection or to care for a family member.”

Unemployment and Credit Scores

When I started thinking about filing for unemployment some of my initial thoughts were, “Does unemployment hurt credit? And how will this impact all of my finances in general? 

The good news is that filing for unemployment insurance does not have any impact on your credit score. When your credit report is run there is no updated information regarding employment status. 

The only thing that gets tricky is if you are paying bills late or incurring higher than usual credit card balances because you are unemployed. Unfortunately, unemployment benefits typically don’t cover all of a person’s typical expenses, so if you are late on payments that will have a negative impact on your credit score. 

Your credit report only contains your personal identification information, like addresses and social security number, credit card and loan histories and bankruptcy filings. That means unless you’ve recently updated or opened a new credit card that would include unemployment, it will go undetected on a credit report. 

Does Unemployment Show Up on Job Applications

The question of whether or not filing for unemployment shows up on job applications is tricky. Because unemployment insurance is run by a government agency, legally they can’t provide employers with your records and information. 

That means when you are filling out a job application, your potential future employers won’t be able to ask the government whether or not you’ve been collecting unemployment. However, almost every job application asks for employment history and a resume. 

If unemployment is something that they are concerned about, the employer could pretty easily notice any gaps in your employment history. If you worked at a bank from 2015-2017 and then your next most recent work history is an investing firm from 2018-2019, they may ask you about your employment from 2017-2018.

In any case, filing for unemployment won’t directly affect your job applications, which is a huge relief for those of us trying to plan ahead for the future.