Who pays for unemployment insurance?
Your employer pays for unemployment insurance benefits, not the employees. In fact, businesses in the United States contribute money to the fund on a state and federal level, and a company’s payroll determines how much money they contribute. Learn more about who pays for unemployment insurance in our guide below.
Free Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
UPDATED: Jul 19, 2021
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider. Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.
Insurance Q&A: “Who pays for unemployment insurance?”
There seems to be a bit of uncertainty about who pays for unemployment insurance.
One of the main misconceptions floating around out there is that employees pay for the unemployment insurance benefits out of their pocket (or paycheck).
You may have heard someone who is unemployed make the statement, “I better get unemployment, I have been paying into it for XYZ years while I was working.”
That statement couldn’t be further from the truth. Individual employees do not contribute a dime to the American unemployment insurance fund.
The reality is; your employer contributes to the unemployment insurance fund. In fact, businesses in the United States contribute money to the fund on a state and federal level…double whammy!
And a company’s payroll determines how much money they contribute. The more money a business pays to its employees, the more money they have to contribute to the unemployment fund and vice versa.
How the Whole Thing Works
The fundamentals of the economy are at work here. We are all too aware right now that the economy cycles in booms and busts.
Theoretically, when the economy is booming, businesses are hiring more employees and unemployment in the U.S drops, which leads to higher payroll. Higher payroll, in turn, generates more money for the state and federal unemployment insurance funds.
Then, when the economy lags, and unemployment is subsequently higher, the unemployment insurance pool is ideally funded to make payments to those in need.
At the end of the day, employees don’t directly fund the unemployment insurance pool. There is no money coming out of your paycheck to cover you or your colleagues in the event you become unemployed.
Read more: Unemployment insurance.