Temporary Income Support for Unemployed Workers

Although unemployment levels have declined recently, in 1998 a total of 8.4 million people were unemployed in North America: 6.3 million in the United States, 1.3 million in Canada, and 869,000 in Mexico. Thus the unemployment rates for these countries in the same year were 4.5 percent in the United States, 8.3 percent in Canada, and 2.3 percent in Mexico.

This section contains answers to key questions that workers often ask when they become unemployed.

Canada

Yes; when you lose your job involuntarily and you have worked more than a minimum number of hours in the past year, you have the right to apply for Employment Insurance (EI), formerly called Unemployment Insurance. This insurance will provide you with temporary income while you look for a job.

Benefits

Under the new EI system, every hour you have worked counts. The more you work, the more you are insured against job loss. Your earnings also count: up to a certain maximum, the more you earn the more you will receive in the event of job loss. The basic benefit rate is 55 percent of your average earnings, up to a maximum of $413 a week. However, workers in low-income families may receive benefits at a higher rate (see Question 6.1).

Your benefits may continue for between 14 and 45 weeks in a year, depending on the unemployment rate in the province where you worked. If you have regularly claimed such benefits in the past, however, your benefits rate is reduced by 1 percent for each 20 weeks of regular benefits you collected during the previous five years, up to a maximum reduction of five percent.

For low-income families with children living on incomes under $25,921, the Family Supplement provides a top-up to weekly EI benefits by using a higher benefit rate (75% in 1999 and 80% in 2000).

Eligibility

To receive EI benefits, you must have lost your job without just cause and you must be willing and able to work. Most applicants will need to have worked between 420 and 700 hours within the last 52 weeks, depending on the unemployment rate in the region (see Appendix A).

If you agree to leave your job as part of an employer's work force reduction plan, you can also qualify for benefits. If you lose your job or are unable to resume a previous job because you are directly involved in a labor dispute, however, you cannot receive EI benefits.

Who pays?

You and your employer pay for the benefits. Workers currently contribute 2.55 percent of their gross pay, up to a yearly maximum of $994. This premium will be deducted from your pay. Your employer is required to pay 1.4 times the amount of your contribution to the Employment Insurance Account.

Applicants may apply for benefits at their local Employment Centre.

Mexico

In Mexico there is no unemployment insurance system. However, the Mexican Federal Labor Law (Ley Federal del Trabajo, LFT) mandates that a worker who is dismissed without just cause has the legal right to receive severance pay from the employer. Severance pay will depend on your labor contract and on your length of service with your employer (see Question 1.2).

United States

Yes; all workers who are unemployed involuntarily receive income support for a limited time. The main objective of this support is to provide you with temporary income while you look for a job.

If you are a worker whose hours of work are reduced because of a layoff of at least 20 percent of the employer's work force, you are eligible to be compensated with unemployment benefits in proportion to your reduced work (Short Time Compensation).

Benefits

Each state specifies the amount of weekly and total unemployment payments and the way they are calculated. Your weekly benefit will depend on your work and the amount you earned over the past year. Usually, jobless workers receive about 50 percent of their average weekly gross wage over the last 52 weeks. The maximum benefit ranges between $180 and $359 per week, depending on the state. Remember that unemployment payments are taxable as income.

Most states limit the duration of payments to a maximum of 26 weeks, although in some states benefits may continue for as long as 30 weeks. During times of high unemployment in the state, individuals who have exhausted their benefits under state law may continue to receive payments for up to 13 additional weeks (Extended Benefits Program).

If your hours of work were reduced because of a massive layoff, you are entitled to receive up to 20 percent of your unemployment benefits to compensate you for lost working time.

Eligibility

To be eligible, you must be involuntarily unemployed, able to work, and available for and seeking work. You must have been employed for at least 20 weeks during the past year. You may be eligible for short time compensation if your employer has temporarily cut the work force by at least 20 percent.

Contact the employment security office in your state if you wish to apply for benefits.

Who pays?

Your employer finances the unemployment insurance through a federal tax on wages paid. This is supplemented from general federal revenues. Employers pay a federal unemployment tax (FUTA) of 6.2 percent on the first $7,000 of each employee's insurable wages during the calendar year. Tax rates vary on wages between $7,000 and $25,800. The 6.2 percent gross rate includes a permanent tax of 6.0 percent and a temporary surtax of 0.2 percent.²

Your employer must not withhold federal unemployment insurance taxes from your wage.

Canada

In some jurisdictions and circumstances, employers must make a severance payment to workers whose employment has been terminated. Severance payments are currently mandatory in the federal jurisdiction and in the province of Ontario.

In all jurisdictions, employers are required to give advance notice to workers whose employment is about to be terminated or pay in lieu of the required notice equal to the regular wages that the employee would have received during the required period of notice. You cannot be dismissed for reasons contrary to human rights legislation (this includes protection against dismissal because you are pregnant, active in trade union activities, or involved in proceedings under industrial relations or employment standards legislation).

Eligibility

The amount of the severance payment depends on your length of service with the employer and your regular rate of pay. In the federal jurisdiction, employees must have completed 12 consecutive months of employment to be eligible. In Ontario, employees must have at least five years of service.

Benefits

In the federal jurisdiction, an individual employee who has been terminated is entitled to two days' wages for each completed year of employment. Eligible workers receive a minimum of five days' wages at the regular rate.

In the province of Ontario, an employee with five or more years of service terminated by an employer with an annual payroll of $2.5 million or more is entitled to one week's regular wages (exclusive of overtime) for each year of service. Payments should not exceed 26 weeks' regular wages.

When 50 or more workers are terminated within six months because of a permanent discontinuance of all or part of the business, the employer must pay each employee who has completed at least five years of service a severance payment of one week's regular wages for each year of service to a maximum of 26 weeks.

Mexico

Yes; workers who are dismissed for unjustified reasons (see Appendix B) have a legal right to receive a severance payment (indemnización) or to be reinstated in the same job.

If you voluntarily leave your job, you are also entitled to receive a length-of- service bonus. If you are discharged for justified or unjustified reasons you are also entitled to receive this benefit.

Benefits

Your indemnización will depend on your length of service with the same employer and whether your labor contract is for a specified or an unspecified period.

1. If you are discharged for unjustified reasons and your employment is for a specified period and you have worked less than one year, you are entitled to receive a severance payment equal to the wages you received for half of the time you worked for the employer. Workers with more than one year of service are entitled to receive a severance payment of six months' wages for the first year of service plus 20 days' wages for each additional year of service. In addition, you are entitled to receive payments for vacation not taken, the corresponding vacation bonus, and a prorated portion of the annual bonus, aguinaldo (See Appendix B).

2. If you are discharged for unjustified reasons and you have an unlimited labor contract, you are entitled to receive three months' wages plus a length-of-service bonus equal to 12 days' wages for each year of service. You are also entitled to receive wages for the period between the day you are dismissed and the day your severance compensation, payments for vacation not taken, the corresponding bonus, and a prorated portion of the aguinaldo are paid. If you ask to be reinstated and your employer refuses, in addition you will receive 20 days' wages for each year of service.

3. If you have worked 15 years or more with the same employer and voluntarily leave your job, you are entitled to a length-of-service bonus equal to 12 days' wages for each year of service. You are also entitled to receive payments for vacation not taken and a prorated portion of the aguinaldo. Workers who are discharged for justified or unjustified reasons are also entitled to receive a length-of-service bonus (See Appendix B).

When the compensation must be paid

The compensation payment must be made within one pay period, beginning 72 hours after the notification of dismissal. This condition is not applicable for length-of-service compensation payments. If your employer refuses to pay, you may apply to the Conciliation and Arbitration Board (Junta de Conciliación y Arbitraje) for your compensation.

You should remember that the compensation payments that you receive are considered taxable income.

Eligibility

All employees with a limited labor contract who are discharged for unjustified reasons are eligible for severance pay. Your employer must send you a written notice indicating the date of termination and the reason or reasons therefor; otherwise the dismissal is considered unjustified.

All permanent workers whose employment is terminated on justified or unjustified grounds are entitled to a length-of-service bonus. Temporary workers are also entitled to receive this benefit if they have worked more than 15 years for the same employer. Workers who resign voluntarily must have completed at least 15 years' service to receive this benefit.

United States

Many employers do offer severance pay to employees who are laid off or let go for reasons other than misconduct, but no law requires it. An employer may be legally obligated to pay severance pay, however, if there is:

• a written contract stating that severance compensation will be paid;
• a promise that employees will receive severance pay, documented in an employee handbook;
• a history of the company making severance payments to other employees in your position; or
• an oral promise that the employer would pay you severance pay.

Severance pay arrangements are integral parts of many employees' benefit programs, particularly for production employees (who frequently are covered by collective bargaining agreements). An employer's obligation to pay severance benefits in the case of a corporate sale, business unit divestiture, or other restructuring varies depending on the plan's terms and the surrounding circumstances.

Although severance benefits are nearly always voluntary on the part of the employer, a few states mandate severance benefits for certain employees. This is the case in Maine, Massachusetts (for companies with more than 50 employees), Pennsylvania and Rhode Island, where severance pay is mandated in situations involving the transfer of control of a company. In the Virgin Islands, severance pay is also mandated in the case of a plant closing.

Benefits

An employer with a formal or informal severance pay policy generally bases payments on an employee's length of service. In addition to severance pay, an employer might offer (or might be required to offer) other benefits to terminated employees. Among these are the option of continuing to be covered by the company's group health care insurance plan at the worker's own expense for some time after employment ends (Consolidated Omnibus Budget Reconciliation Act of 1986, COBRA), life insurance coverage, accrued vacation pay, and assistance in finding another job.

In states where severance pay is mandatory, the employer generally must provide involuntarily terminated employees with severance pay of between one and two weeks' regular pay for each completed year of service (see Appendix A).

Any severance pay you receive is considered taxable income.

Eligibility

Severance policies and plans generally provide for payments based on an employee's length of service.

In states where severance pay is legally obligatory, conditions of eligibility vary. In Massachusetts, Maine and Rhode Island, employers must grant severance pay to any employee who is terminated involuntarily and has worked more than three years for the company. In the Virgin Islands, severance pay is required for every employee affected by a plant closing who has more than one year of service. In Pennsylvania, severance pay is granted to all employees whose employment is terminated for reasons other than willful misconduct related to their work.

In providing severance benefits, employers must not discriminate based on race, color, religion, sex, national origin, age, or physical or mental disability.

When the benefit must be paid

Any employer that agrees to provide severance pay to an employee must pay the amount due according the state's laws. In Pennsylvania, Maine, Massachusetts and Rhode Island, the required severance payment must be made within one regular pay period after the employee's last day of work.

Who pays?

The employer pays. The typical severance arrangement provides for a lump sum payment or limited installment payments that are payable either from the employer's general assets or from an established fund.

Canada

The new Employment Insurance (EI) benefits are based on hours rather than weeks worked, so you might qualify for benefits if you have worked the minimum number of hours in the past year. Minimums vary from 420 to 700 hours, depending on the unemployment rate in the region where you worked.

If you are a self-employed worker who owns a business or if you work for yourself, however, you are not considered to be in insurable employment and you do not qualify for income support.

If you qualify, benefits are the same as those received by wage-earning and salaried workers (see Question 1.1).

Mexico

If you are a part-time worker and you are dismissed for unjustified reasons, you are legally entitled to receive severance pay from you employer. The Federal Labor Law does not make distinctions between part-time workers and full-time workers. The only conditions affecting your benefits are your type of contract, the length of time you have worked for the same employer, and whether your dismissal is for justified or unjustified reasons (see Question 1.2).

If you are a self-employed worker you do not have the legal right to receive severance pay.

United States

In some states, unemployed persons who can work part-time only are considered eligible for unemployment compensation if they have been working in an occupation in which there is substantial demand for workers. Other states may require you to be available for full-time work in order to be eligible, but in some cases this is due to administrative interpretation rather than the provisions of the legislation.

Self-employed workers are not eligible for unemployment insurance benefits or severance pay.

Canada

In Canada health care is not an employment benefit; it is publicly financed and universally accessible to workers and non-workers. So if you lose your job you can continue receiving health care services for as long as you need them.

Mexico

According to the Ley del Seguro Social (Social Insurance Law), unemployed wage-earning and salaried workers and their dependents can continue receiving medical and surgical attendance, medication and hospitalization services for eight weeks after employment ends. You have a legal right to receive health care services if you either lose or leave your job. Workers involved in strikes are also entitled to these benefits for the duration of the strike.

To be eligible, workers must have paid premiums for at least eight continuous weeks.

United States

The provision of health insurance for employees is voluntary. No federal law requires employers to provide or pay for health insurance coverage for part-time or full-time employees. However, an employer who promises to provide health insurance must follow through on that promise.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees who quit or are dismissed for reasons other than gross misconduct (deliberate, wrongful violations of workplace standards) have the right to continue receiving group health care coverage for 18 months, provided they pay the premiums themselves at the group rates. Family coverage is included in this provision.

Canada

If you are unemployed, in addition to income support while you are looking for a job, you may receive self-employment assistance to help you to create your own business. You may also be eligible to receive a loan or grant to develop new skills that will help you to improve your employability. The aim of these benefits is to improve your skills and ease your adjustment and reintegration into the labor force.

If you take a job with a wage lower than the one you had in your previous job, you may receive a supplement to your wages.

Mexico

If you are unemployed you are entitled to training that will help you adapt your knowledge, abilities and skills to the requirements of the labor market. These benefits are provided under the Programa de Becas de Capacitación para Trabajadores Desempleados (PROBECAT), the objective is to help you to find a job by upgrading your skills, or to help you start your own business.

Benefits

Trainees receive a monthly stipend equal to the minimum wage plus transportation costs. Training may last from one to three months and may include:

• classroom training programs (capacitación escolarizada);
• on-the-job training programs (capacitación mixta), which provide an opportunity to be employed by the employer who is training you; and
• self-employment training programs (capacitación para el autoempleo) to help people start their own businesses.

Eligibility

In order to participate in any of these programs you must meet certain eligibility requirements. If you apply for classroom training, you must be between 18 and 55 years old, have at least three months' work experience, have dependents, and have completed a basic level of education. To apply for on-the-job training you must be between 16 and 40 years old, know how to read and write, and have dependents. Both these programs are for workers with no post-secondary education.

United States

The U.S. Department of Labor has implemented various programs to assist workers who are likely to face long-term unemployment because of plant closings, mass layoffs, imports, economic conditions, or natural disasters. You may be eligible for any of these programs, depending on the reasons you lost your job.

Benefits

If you are a displaced worker and it is unlikely that you can return to your previous industry or occupation, you are eligible for job search assistance, retraining, and income maintenance according to the Economic Dislocation and Worker Adjustment Act (EDWA). Retraining services include occupational skills, on-the-job training, basic and remedial education, entrepreneurial training, and literacy/language training.

If you are a displaced worker, or if your hours of work and wages were reduced as a result of increased imports, you may be eligible to receive training, job search allowances, relocation allowances, and other re-employment services (under the Trade Adjustment Assistance program, TAA). Eligible workers can receive benefits for up to two years.

If you are a worker displaced because of increased imports from Mexico or Canada, or because of the relocation of a U.S. plant to either of those countries, you are entitled to receive: readjustment services, employment services, training, income support, job search allowances, and relocation allowances (under the North American Free Trade Agreement Transitional program). Workers in companies indirectly affected by NAFTA, such as suppliers of affected firms, are also eligible for these benefits.

In any of the above situations, if you have exhausted your unemployment insurance benefits, you may receive special payments while you complete training programs.

Canada

Yes; you are permitted to work a few hours a week while you are receiving EI benefits, and to receive wages up to the greater of $50 or 25 percent of your Employment Insurance (EI) benefits per week without penalty. Earnings in excess of this amount will result in a reduction of your EI benefits on a dollar-for-dollar basis.

Mexico

There is no unemployment insurance in Mexico.

United States

Yes; you are allowed to work while you are receiving temporary unemployment income support. However, your benefits will continue only if your wage is no greater than a specified percentage of the amount of your unemployment benefit. The percentage varies among states, but is usually no more than 25 percent of the benefit amount.

² Since employers liable for state unemployment insurance taxes generally are allowed to deduct a credit of up to 5.4 percent of their federal taxable payroll for state unemployment insurance taxes paid, most employers pay a net FUTA tax of 0.8 percent.

³ In Canada, part-time workers are those who work less than 30 hours a week; in Mexico and the United States part-time workers are those who work less than 35 hours a week.