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Nathan Dell

Who pays unemployment when a business closes - California EDD explained

So my employer just announced they're shutting down completely - like the whole company is closing its doors at the end of next month. About 60 of us are getting laid off and I'm trying to understand how unemployment actually works in this situation. My coworker was saying something about how the company has to pay us unemployment directly but that doesn't sound right to me. I've been paying into the system my whole working life but never actually had to use it before so I'm completely lost on the logistics of how this works. Who actually pays unemployment benefits when a business closes? Does the company have to fund it? Does it matter that the entire business is shutting down vs. just downsizing? And does California EDD treat a mass layoff from a company closure differently than if I was just let go individually? I want to make sure I understand the system before I go file so I don't mess anything up. Any help is really appreciated.

Great question and one a lot of people get confused about. To clear this up - California EDD unemployment benefits are NOT paid directly by your employer. They come from the State Disability Insurance and Unemployment Insurance fund, which is the UI Trust Fund. Your employer has been paying into this fund through payroll taxes (called FUTA at the federal level and SUI at the state level) the entire time you worked there. So even if your company is completely closing down and ceasing to exist, those funds have already been collected and are sitting in the state fund waiting to be distributed to eligible claimants. The fact that the whole company is shutting down doesn't change your eligibility at all - a company closure is a qualifying separation from employment. File your claim with California EDD as soon as your last day of work hits. Don't wait.

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This is incredibly helpful, thank you. So basically my employer has been paying taxes that go into a pool, and then California EDD pays me from that pool? It's not like my old company has to cut me a check or anything?

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Exactly right. Think of it like car insurance - you pay premiums, then if you get in an accident the insurance company pays, not you personally. Your employer paid 'premiums' into the UI fund and now the fund pays you. The company doesn't have to do anything further.

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yep this is correct. worked in payroll for years, employers pay FUTA and state UI taxes every quarter based on their payroll. that money goes to the state fund. the employer themselves never touch it again after paying it in.

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Just want to add something important here - when an entire business closes, sometimes there are additional protections you should know about. California has the WARN Act (Worker Adjustment and Retraining Notification Act) which requires employers with 75 or more employees to give 60 days advance notice before a mass layoff or plant closure. If your company has 60+ people being laid off and didn't give proper notice, you might be entitled to back pay and benefits for the notice period. This is separate from your unemployment insurance claim with California EDD but could be additional compensation you're owed. Worth looking into given your situation.

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We got about 5 weeks notice, not 60 days. Does that mean they violated the WARN Act? Should I be talking to a lawyer about this before I file my UI claim?

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Possibly, depends on exact headcount and circumstances. Consulting with an employment attorney about the WARN Act issue is separate from filing your UI claim - do both. File your California EDD claim immediately on your last day, don't wait on the attorney consultation because UI has a waiting week and you want benefits flowing ASAP.

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omg I had no idea about the WARN act. my company closed last year with basically no notice and I never even looked into this. too late for me probably but good info for OP

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When I got laid off during a company closure two years ago I was honestly panicking about the same thing - worried that if the company was gone there would be no one to 'approve' my unemployment or whatever. But the California EDD process was actually pretty smooth because it was a clear-cut layoff with no dispute about why I left. The trickiest part was just getting through to an actual EDD agent when I had a question about my base period wages because my final paycheck had some weird commission calculations. Calling EDD was an absolute nightmare - I spent three weeks trying to get someone on the phone before a friend told me about Claimyr. It's a service that navigates the EDD phone system and gets you connected to a live agent. Used it at claimyr.com and finally got through within a day. There's also a video walkthrough at https://youtu.be/JmuwXR7HA10 if you want to see how it works before trying it. For a straightforward closure layoff you might not even need to call, but good to have in your back pocket just in case.

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Glad to hear the process was smooth for you. I'm hoping mine goes similarly. I'll definitely save that Claimyr info because I have a feeling I'm going to have questions once I'm actually in the system.

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seconding Claimyr - I used it last spring when my claim got stuck and I genuinely could not get EDD on the phone any other way. worked exactly as described.

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I'm always a little skeptical of third party stuff when dealing with government benefits but I guess if the phone lines are impossible what choice do you have

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EVERYONE saying this will be smooth has never dealt with EDD lol. yes the CONCEPT is simple - state pays you from the fund - but in PRACTICE EDD can make even the most obvious layoff complicated. they'll send you questionnaires asking why you left. they'll want your employer to confirm the separation. except YOUR EMPLOYER IS CLOSING. so who responds to EDD's employer questionnaire when the company doesn't exist anymore?? I've seen this cause adjudication delays that go on for WEEKS. just be prepared that 'simple' is not always how EDD operates

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This is actually a fair point. When a company is in the process of closing, the HR department may be winding down, key personnel may have already left, and EDD's employer response deadline could get missed. This doesn't mean your claim will be denied - it actually often means EDD rules in the claimant's favor if the employer doesn't respond - but it CAN cause a delay while adjudication runs its course.

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Okay this is making me more nervous. So even though the reason for separation is totally clear - company closed, everyone got laid off - it can still end up in adjudication?

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YES. It can. EDD is EDD. Just be ready for it and file everything perfectly.

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this happened to me, went to adjudication even though it was obvious I was laid off when they closed. was resolved in my favor after 3 weeks but those were a stressful 3 weeks

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To answer your question about whether California EDD treats mass layoffs from closures differently - officially they don't treat you differently than an individual layoff in terms of eligibility. A layoff is a layoff. BUT practically speaking, mass layoffs from closures sometimes trigger what's called a 'Rapid Response' program through the state's Employment Development Department and local workforce boards. These are free workshops and services specifically for workers affected by mass layoffs - resume help, retraining resources, sometimes even on-site EDD representatives who can help you file your claim correctly. Ask your HR department whether your company has set up Rapid Response services for affected employees. It's something employers are often encouraged to arrange when doing large-scale closures.

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I had never heard of Rapid Response services before. I'll definitely ask HR about this. Thanks for the tip.

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Worth asking before the HR team fully disperses! The services are provided through local America's Job Center of California locations and are genuinely useful for people who haven't had to navigate unemployment before.

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+1 on Rapid Response - went through one when my company closed a few years back. They had EDD reps there who answered questions and it made filing way less confusing

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quick question - does it matter for who pays or how much you get if the company was like a small business vs a big corporation? asking because OP said 60 people but I work for a tiny company with 8 employees and always wondered if smaller employer = smaller benefits somehow

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Your benefit amount is calculated based on YOUR wages during your base period, not based on the size of your employer. Doesn't matter if you worked for a 5-person startup or a Fortune 500 company - California EDD looks at what you earned in the highest-earning quarter of your base period to calculate your weekly benefit amount. Employer size is irrelevant to benefit calculations.

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oh that's actually really good to know, I always assumed bigger company = more funded somehow. makes sense that it's just about what you personally earned

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Something nobody has mentioned yet - make sure you understand the base period when you file. California EDD calculates your benefit amount using wages from a specific 12-month period that ended before your claim. It's NOT just your most recent earnings. If you had a pay raise in the last year or recently moved to a higher-paying job, your benefit amount might actually be lower than you'd expect because the base period might capture your older, lower wages. The standard base period is usually the first four of the last five completed calendar quarters before you file. There's also an alternate base period option if the standard one doesn't work in your favor. Worth understanding before you have expectations about how much you'll receive.

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Oh wow I did not know this. I got a significant raise about 8 months ago. Should I be looking at whether standard or alternate base period gives me better numbers?

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Definitely. When you file online California EDD should automatically calculate both and use whichever is more favorable, but it's good to understand what you're looking at when you see the award notice. If you think the calculation is wrong, that's one situation where you'd want to reach an EDD agent to verify.

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California EDD does calculate both automatically now which is good but knowing how it works helps you understand your award letter and catch potential errors

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not to be a downer but has anyone else noticed EDD has been weirdly slow lately? I filed 6 weeks ago for a regular layoff (not a closure, just downsizing) and my claim is STILL in adjudication and I cannot get a single human being on the phone. tried calling at 8am, tried calling at different times, nothing. feeling really desperate at this point

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I mentioned Claimyr earlier in this thread - that is exactly what it's designed for. When you literally cannot get through by calling normally, claimyr.com navigates the system for you and gets you to a live EDD agent. The video at https://youtu.be/JmuwXR7HA10 shows the whole process. Six weeks in adjudication with no contact is when you really need a live agent, not just the automated system.

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I saw that mentioned earlier, I'll actually try it at this point. Six weeks is too long I need answers

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SIX WEEKS?? Yeah that is not normal even for EDD standards. You need to talk to an actual human. The automated system is useless for adjudication questions.

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I went through an exact situation like yours last year, whole company folded and about 50 of us were laid off within about 2 weeks of the announcement. Few things I learned the hard way: 1) File your California EDD claim on your actual last day of work, not before - filing early can cause issues. 2) When it asks why you were separated, choose 'lack of work' and specify company closure in the explanation. 3) Keep copies of everything - your layoff notice, any company communications about the closure. 4) Start your job search log immediately from day one because EDD requires you to document at least one job search activity per week for most claimants (unless you qualify for standby status). The job search requirement catches a lot of people off guard.

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The job search requirement is something I didn't fully understand. I thought there was a waiting period or grace period before that started? Or am I wrong about that?

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There's a waiting week where you don't receive payment, but the job search requirement starts from when your benefit year begins. Technically you should be documenting job search activities from your first certifiable week. EDD can ask for your job search records and if you can't produce them it can affect your benefits.

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this catches SO many people off guard. people assume they have time to figure out the job search stuff and then realize they should have been logging from the start

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Does anyone know if severance pay affects unemployment benefits in California? My company is giving us 4 weeks of severance and I don't know if I have to report that or if it counts as wages that would reduce my weekly benefit amount

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In California, severance pay generally does NOT affect your unemployment benefits - it is not considered wages that would reduce your weekly benefit amount. However, if the severance is being paid AS wages for a specific period (like the company says they're paying you through a certain date), that could be treated differently. Pure lump-sum severance or continuation pay that isn't tied to specific work performed typically doesn't reduce your UI benefits. That said, this is one of those edge cases where if you're uncertain, verify with a California EDD agent directly.

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So I should still report it when I certify just to be safe and let EDD make the determination?

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That's the safest approach. Report any money you receive and let EDD make the determination rather than trying to figure out the rules yourself and potentially making a mistake that leads to an overpayment notice later.

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Reporting everything is always the right call. Overpayment notices are a nightmare and much worse than just being upfront. California EDD can go back and audit your certifications.

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To circle back to OP's original question since the thread went a few directions - the simple answer is that the STATE of California pays your unemployment benefits through the UI Trust Fund. Your employer funded that trust by paying taxes on your wages throughout your employment. It doesn't matter that the company is now closed - those taxes were paid in, they're in the fund, and you are entitled to draw from that fund if you meet eligibility requirements. The company's existence going forward is completely irrelevant to your claim.

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Thank you for the clear summary. This is what I needed to understand. The company closing doesn't mean the money isn't there - it was already collected and is sitting in the state fund.

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Exactly. And just to add - this is why unemployment insurance exists. The system was designed specifically for situations like yours where workers lose their jobs through no fault of their own. You've been contributing to this safety net your whole career, now it's there when you need it.

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One more practical thing - if your employer goes bankrupt as part of the closure (as opposed to just closing voluntarily), there's technically a process where EDD can try to collect unpaid employer UI taxes from the bankruptcy estate. This doesn't affect YOU as a claimant at all, you'll still get paid from the general fund regardless. But it's worth knowing that even employers who try to close without paying their required taxes don't necessarily let their employees off the hook - EDD has mechanisms to deal with that.

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Is there a way to check whether my employer is current on their payroll taxes? I honestly have no idea if they were managing finances responsibly given that the company is failing.

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As an employee you don't really have visibility into that and honestly it doesn't change what you should do which is just file your claim and let EDD handle any employer-side complications. Your eligibility for benefits is protected regardless of whether the employer paid their taxes properly.

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This is a good point and correct. Worker protections under UI are not contingent on the employer having been fully compliant. File your claim, let EDD do their thing on the employer side.

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Am i too late to file if my company closed like 3 months ago and I've been trying to find work on my own but haven't found anything yet. I didn't realize I could apply until I saw this thread

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File right now. You cannot get back the weeks that have already passed - California EDD only backdates claims in very limited circumstances and 'I didn't know I could apply' generally isn't one of them. But you can absolutely still file and receive benefits going forward from your filing date. Every day you wait is another day of potential benefits you're losing. Go to UI Online at www.edd.ca.gov and file today.

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Filing right now as I type this. Thank you

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good luck!! yes always file ASAP even if you're not sure you qualify, let EDD make the determination

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Just want to share my experience since it's relevant - my employer closed their California location but continued operating in other states. I was confused about whether I filed with California EDD or with the state where the company headquarters was. The answer is you file with the state where YOU worked, not where the company is based. So California workers file California EDD claims regardless of where the company calls home.

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That's actually a really good clarification. My company is incorporated in Delaware (like so many are) but we're all working in California - so definitely California EDD.

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Yes exactly. Your wages were subject to California payroll taxes because you worked here. California EDD is your agency.

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This trips people up more than you'd think. Especially for remote workers whose companies might be based in another state. You file where you physically worked.

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slightly different situation but related - what if the company sold to another company instead of closing? like they're calling it a 'transition' and saying our jobs are 'potentially' continuing with the new owner but nothing is guaranteed. can we apply for unemployment now just in case or do we have to wait to see if we actually lose our jobs

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You cannot file preventively - you can only file once your employment actually ends. If the new company retains you and you continue working, you're not eligible for UI. If they let you go or change your conditions substantially enough that you have to resign, then you'd file. Keep documenting everything about the transition though - if you end up having to file, those records about what you were told and when could be relevant.

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Ugh okay. I guess I just wait and see then. Stressful not knowing.

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Potentially' continuing from a buyer usually means'they re going to let at least some people go. Start updating your resumeregardless.

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I have been dealing with the WORST California EDD experience after my retail employer closed. Filed over a month ago, everything seemed fine, then got a notice that my claim requires 'phone interview to verify separation.' They scheduled an interview, I waited by the phone the whole time, THEY NEVER CALLED. Now I have to reschedule and who knows how long that takes. I have bills due NOW.

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This is unfortunately common - EDD scheduled interviews don't always happen. You need to proactively contact EDD to reschedule and also to note that they missed the scheduled call (not you). This is exactly the situation where Claimyr is useful - getting a live EDD agent on the phone to flag the missed interview and get it rescheduled quickly. claimyr.com - don't just sit and wait for EDD to reach back out to you.

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I've been trying to call them but can't get through. This is a nightmare. Will look into Claimyr because I genuinely have no other options at this point.

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missed EDD phone interviews are SO frustrating because they act like it's on you to reschedule even when THEY didn't call. been there. definitely reach out proactively.

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document everything - when the interview was scheduled, what time you waited, that you didn't get a call. if there's ever any question about whether you were cooperative with the process you want that paper trail

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for anyone reading this later with the same question - I did a ton of research on this when my employer went under and here is what I found in simple terms: employers pay a percentage of wages into both a federal fund (FUTA) and California state fund (SUI/UI tax) throughout the life of the business. When you file for unemployment, California EDD pays you directly from the state fund. The amount you receive is based on your own earnings history. Your old employer doesn't pay you, doesn't approve or deny you, and doesn't have to exist for you to collect. The only thing your employer does after you file is respond to EDD's separation questionnaire, and even if they fail to do that the claim still processes.

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This is the clearest explanation I've found anywhere online. Thank you for writing it out so thoroughly.

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Hope the claim goes smoothly for you. Given it's a clear company closure layoff you should be in good shape. Just file promptly, certify every two weeks on time, and document your job search activities.

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Saving this explanation for the next time someone asks me this question. Really well put.

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Update from OP - filed my California EDD claim yesterday on my last actual day of work (have a couple weeks left but HR let us know exact separation date). The online process was pretty straightforward, took about 45 minutes. Selected 'lack of work' and noted company closure. Got my claim confirmation number. Now in the waiting week. I'm going to keep checking this thread if anything weird comes up. Thanks to everyone who helped explain how the funding works - I feel a lot less panicked knowing that the money is already in the state fund and the company closing doesn't change my access to it.

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Great news, you did everything right. Keep certifying every two weeks starting with your first eligible week, maintain your job search log, and you should be fine. Come back if anything unexpected shows up in your status.

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Good luck! Rooting for a smooth process for you. The hardest part is usually just the waiting week and first payment cycle.

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yay!! glad you got it filed. the first claim is always the most stressful because it's unfamiliar. you got this

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