Unemployment insurance is a system of cooperative federalism, in which each state receives federal funds to reimburse its costs of administering the program, and employers receive federal tax credit for unemployment insurance tax they pay.
States are afforded broad freedom to design and operate their unemployment insurance programs, but those programs must satisfy certain minimum criteria contained in the Federal Unemployment Tax Act (FUTA) to qualify for their share of federal funding. A state is free to expand its unemployment coverage beyond the federal minimum without jeopardizing its federal certification.
Upon determining that a state’s unemployment laws and practices satisfy federal requirements, the United States Secretary of Labor “certifies” the state enactment, thereby making the state eligible to be reimbursed out of the federal treasury for the cost of administering its unemployment compensation system.
Unemployment compensation is generally given only to those registering as unemployed, and often on conditions ensuring that they seek work and do not currently have a job. Strong public policy favors payment of unemployment benefits to persons unemployed through no fault of their own.
[Last updated in October of 2021 by the Wex Definitions Team]