UI Claims Management

How to Prevent and Handle Unemployment Claims

10.17.2018

Author

Jeff Aleixo

money-vortex

Many employers view unemployment taxes as the cost of doing business, but every unemployment claim that gets paid out to former employees has the potential to raise unemployment insurance tax rate. The average claim can increase an employer’s state tax premium $4,000 to $7,000 over the course of three years and not winning claims can easily cost employers tens of thousands of dollars annually, if not more. Therefore, it is necessary for employers to understand unemployment claims management process to handle it successfully and improve their chances of minimizing the inevitable costs.

Unemployment Insurance and Its Financing

Unemployment insurance was created to provide limited compensation for employees who have lost their jobs through no fault of their own. It is funded almost entirely by employers. Only three states – Alaska, New Jersey and Pennsylvania – withhold unemployment insurance tax from employees’ wages.

The unemployment system is a financial partnership between the federal and state governments meaning that it is funded, and taxed, at both the federal and state level:

  • The Federal Unemployment Tax Act (FUTA) tax is imposed at a flat rate on the first $7,000 paid to each employee. The FUTA rate is 6.0% and employers can take a credit of up to 5.4% of taxable income if they pay state unemployment taxes. Once employee year-to-date wages exceed $7,000, an employer stops paying FUTA for that employee. Some of this federal money can be used for loans to states that do not have enough in their UI trust funds to pay claims. If the loans are not repaid, the federal government raises that state’s employer tax rate.
  • The State Unemployment Tax Act (SUTA) tax is much more complex. It provides for state level unemployment compensation programs. States have control over the tax rates they levy, and how they administer and determine qualifications for benefits. Rates vary significantly between states, and rules can take into account what industry an employer is in, whether or not a business is new or existing, how many former employees have filed for unemployment benefits, and the overall unemployment rate in the state.

Handling Unemployment Claims

While employers cannot control whether an employee decides to file a claim, they can take steps to reduce the risk of unqualified claims being levied against them. In order for a state unemployment insurance agency to determine that a person is disqualified from receiving UI benefits, there must be clear evidence of misconduct by the individual.

Since employers bear the burden of proof that an employee engaged in misconduct, they should be able to provide the following in response to a UI claim:

  • A detailed description of the final incident, name and title of the person who terminated the employee, dates of employment, a copy of the company policy and the employee’s signed acknowledgement of the policy.
  • Copies of warnings describing similar incidents from the past, if there are any. Each warning should contain information like when the incident occurred and details of what happened as well as a statement that future incidents of similar misconduct would result in further disciplinary actions, including termination of employment.
  • Presented documentation need to prove that the employee previously was able to meet company standards for a period of three months or more and, when the employment was terminated, was no longer meeting those standards.
  • Specific information about behaviors or actions warranting discharge, such as demonstrations of negligence, carelessness or indifference equivalent to a disregard of the employer’s interests.

How to Prevent Unemployment Claims

Employers’ responsibility for unemployment benefits begins when they hire an employee, not when they terminate employment. There are several things employers can and should do in order to avoid unemployment claims:

  1. Preventing unemployment claims starts with having the right person in the right position. It is important to hire only those workers that a company absolutely needs and who are qualified for the position.
  2. Employers need to provide a detailed description of the new employee’s role and expectations as well as to make sure the new hire understands workplace standards, policies and disciplinary procedures.
  3. Companies’ policies can become meaningless if employees see they are never enforced, or are enforced inconsistently. This can be used in their favor in an event of an unemployment claim hearing. Therefore, policies need to be consistently followed through and regularly updated.
  4. Employers need to communicate with their employees and discuss potential issues regarding performance or discipline. In addition to this, open lines of communication can contribute to solving these problem situations.
  5. In unemployment disputes, it often comes down to an employer’s word against the former employee’s. However, proper documentation puts proof on employers’ side and can make all the difference in a hearing. It is of utmost importance to document everything and get documents signed to show that the employee reviewed and understood the information.
  6. Employment policies need to be in line with current regulations in states. Unemployment statutes can vary widely from state to state, and it’s never a good idea for employers to assume they know what the rules are.
  7. Integrating unemployment claims management software reduces administrative burden, controls employee separation exposure and minimizes unemployment costs. Such proactive approach to unemployment claims administration ensures comprehensive management of unemployment claims and tax rates. Employers are provided with an outsourced solution that saves them valuable time and resources and enables them to avoid unemployment costs.

Effective Unemployment Claims Management

Adherence to unemployment benefits guidelines not only reduces benefit overpayments, but also helps improve state agencies’ efficiency in administering the process while ensuring that employers’ financial exposure is kept to a minimum.

One unemployment claim can be stressful for employers and if they are faced with high volume of them, the process can become very difficult to handle. It is necessary to monitor the claims that are filed and determine how many, if any, need to be contested. In addition to this, there are deadlines that cannot be missed. Otherwise, more issues can arise on employers’ end.

Managing unemployment claims can be overwhelming and complex, and the rules and regulations change often. Thus, it is of crucial importance that employers always adhere to policies, advise employees of infractions, take appropriate corrective steps and keep detailed records. Furthermore, automated unemployment claims processing allows employers to file and protest unemployment claims, appeal unfavorable decisions, prepare for an unemployment hearing, audit charges, generate reports and much more. As a result, employers save time and resources while efficiently handling unemployment insurance costs.

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