Unemployment Management Claims
A Detailed Guide to
Unemployment Insurance Compliance

Author

Jeff Aleixo

unemployment-insurance-ucm

What is Unemployment Insurance?

Unemployment insurance is an insurance by which people may receive benefits if they have faultlessly lost their jobs and they meet other eligibility criteria. Workers who voluntarily terminate employment, and those who are self-employed, are not eligible for unemployment insurance and must use personal funds to cover situations when no work is available. State governments pay unemployment insurance from a fund of unemployment taxes collected from employers.

The enactment of the Social Security Act of 1935 was the first major step towards establishing the Unemployment Insurance (UI) program in the United States. The UI system was created to stabilize the economy and assist unemployed workers who experience financial hardship after losing a job through no fault of their own. Over the years, the program has undergone many changes, from monetary eligibility modifications and the establishment of special programs that provide additional weeks of benefits, to upgrades in technology to improve customer service. The program continues to change in order to support the needs of unemployed workers as they search for new employment.

In the United States, there are 50 state unemployment insurance programs plus one each in the District of Columbia, Puerto Rico and United States Virgin Islands. Though policies vary by state, unemployment benefits generally pay eligible workers as high as $783 per week in the Massachusetts to a low as $235 per week maximum in Mississippi. Benefits are generally paid by state governments, funded in large part by state and federal payroll taxes levied against employers, to workers who have become unemployed through no fault of their own. Eligibility requirements for unemployment insurance vary by state, but generally speaking, employees not fired for misconduct are eligible for unemployment benefits, while those fired for misconduct are not.

In every state, employees who leave their job without good cause are not eligible for unemployment benefits, but the definition of good cause varies by state. In some states, being fired for misconduct permanently bars the employee from receiving unemployment benefits, while in others it only disqualifies the employee for a short period.

The standard time-length of unemployment compensation is six months, although extensions are possible during economic downturns. During the Great Recession, unemployment benefits were extended to 73 weeks.

unemployment-insurance-objectives

Objectives of Unemployment Insurance System

In the long history of implementing unemployment insurance system, the federal government had established different committees to review and propose measures to reform the system. In 1969, the Committee on Unemployment Insurance Objectives published a report entitled Unemployment and Income Security: Goals for the 1970’s to discuss primary and secondary objectives of the unemployment insurance system.

In the report, the Committee stressed that unemployment insurance system serves both primary and secondary objectives. The primary objectives of unemployment insurance system are to provide financial help to workers during temporary periods of involuntary unemployment and provide time for the unemployed workers to find suitable jobs. The secondary objectives of unemployment insurance system are to stabilize the economy during economic recessions and improve the utilization and allocation of labor resources by enabling the unemployed workers to find jobs consistent with their work skills and experience from previous employment.

ui-claims-federal-state-partnership

Unemployment Claims Federal-State Partnership

The UC program is a federal-state partnership based upon Federal law, but administered by state employees under state law. This structure makes the program unique among the country’s social insurance programs. The UC program is also unique in that it is almost totally funded by employer taxes; only three states collect taxes from workers.

The Federal Unemployment Tax Act

To facilitate this program, the U.S. Congress passed the Federal Unemployment Tax Act (FUTA), which authorizes the Internal Revenue Service (IRS) to collect an annual federal employer tax used to fund state workforce agencies. FUTA is the original legislation that allows the government to tax businesses with employees for the purpose of collecting revenue that is then allocated to state unemployment agencies and paid to unemployed workers who are eligible to claim unemployment insurance.

As a federal provision, FUTA regulates the allocation of the costs of administering the unemployment insurance and job service programs in every state. As directed by the Act, employers are required to pay federal and/or state unemployment taxes which are used to fund the unemployment account of the government. The funds in the account are used for unemployment compensation payment to workers who have lost their jobs. Although FUTA payroll tax is based on employees’ wages, it is imposed on employers only, not their employees. In other words, it is not deducted from employee wages. This way, FUTA tax differs from Social Security Tax which is applied to both employer and employee.

State Unemployment Tax Act

The State Unemployment Tax Act (SUTA) provides that employers pay a payroll tax that supplies funds at the state level that are used to provide benefits for unemployed workers. The amount paid by the employer depends upon the experience of claims by former employees on the fund.

Federal Law

Federal law defines certain requirements for the program. The SSA and the FUTA set forth broad coverage provisions, some benefit provisions, the federal taxable wage base and tax rate, and certain administrative requirements. The major functions of the Federal government are to:

  • Ensure conformity and substantial compliance of state law, regulations, rules, and operations with Federal law;
  • Determine administrative fund requirements and provide money to states for proper and efficient administration;
  • Set broad overall policy for administration of the program, monitor state performance, and provide technical assistance as necessary; and
  • Hold and invest all money in the unemployment trust fund (UTF) until drawn down by states for the payment of compensation.

State Law

Each state (defined as the 50 states, the District of Columbia, Puerto Rico, and the US Virgin Islands) designs its own Unemployment Claims program within the framework of the Federal requirements. The state statutes set forth the benefit structure (e.g. eligibility/disqualification provisions, benefit amount) and the state tax structure (e.g. state taxable wage base and tax rates). The primary functions of the state are to:

  • Determine operation methods and directly administer the program;
  • Take claims from individuals, determine eligibility, and insure timely payment of benefits to workers; and
  • Determine employer liability, and assess and collect taxes.

The maximum number of weeks payable vary by state, but most frequently is 26 weeks. In two states the maximum number of weeks payable can exceed 26 weeks under certain circumstances. A few states establish uniform durations for all individuals who are monetarily eligible. However, most states vary the number of weeks payable based upon the amount of earnings in the individual’s base period. In recent years some state have adopted provisions that cap the maximum number of weeks payable based upon the state’s unemployment rate.

While the federal and state legislative landscape underlying UI tax can be complex, proactive management of this process is feasible through electronic solutions for unemployment claims that reduce costs, delay and complexity.
unemployment-insurance-extended-benefits

Extended Benefits

Since 1970, Federal law has provided for the payment of extended benefits (EB) during periods of high and rising unemployment. When a state triggers on to extended benefits, eligible individuals may receive up to 13 additional weeks or in some cases 20. The EB program is funded on a shared basis – in general, half from state funds and half from Federal funds. In addition to the EB program, Congress has, from time to time during periods of national recession, enacted temporary federally-funded programs of supplemental benefits to provide additional weeks of benefits.

The UC program operates counter-cyclically to economic trends, paying out benefits during recessionary times and building solvency during recovery periods.

Estimates of UI program activity for fiscal year 2018

Number of workers covered

142.7 million

Number of 1st payments (State UC+UCFE+UCX)

5.6 million

Benefits paid (all programs)

$29.3 billion

Number of subject employers

8.1 million

State administrative costs (total) UC only

$3.7 billion

$2.7 billion

Payroll taxes – FUTA

$6.3 billion

Payroll taxes – State

$39.1 billion

Financing the Unemployment Insurance Program

Initially, the Federal tax under FUTA was 1.0 percent (0.1 percent effective tax) of the total wages of a worker. By 1940 it had increased to 3.0 percent (0.3 percent effective tax) on wages up to $3,000. Since then, the rate has increased a number of times, occasionally on a temporary basis. In 1985, the Federal tax reached 6.2 percent (0.8 percent effective tax) on taxable wages. On July 1, 2011, the Federal tax was reduced to 6.0 percent. The taxable wage base increased to $4,200 in 1972, $6,000 in 1978, and $7,000 in 1983.

Under current FUTA provisions, a Federal tax is levied on covered employers at a rate of 6.0 percent on wages up to $7,000 a year paid to an employee. The law, however, provides a credit against Federal tax liability of up to 5.4 percent to employers who pay state taxes timely under an approved state UC program. This credit is allowed regardless of the amount of the tax paid to the state by the employer. Accordingly, in states meeting the specified requirements, employers pay an effective Federal tax rate of 0.6 percent, or a maximum of $42 per covered employee, per year.

This Federal tax is used to fund:

  • Federal and state administrative costs associated with UC programs;
  • The Federal share of benefits paid under the federal-state Extended Unemployment Compensation Act of 1970;
  • Advances to states to pay UC; and
  • Benefits under some of the Federal supplemental and emergency programs.

Liable Employers

Employers are subject to the Federal unemployment tax if, during the current or preceding calendar year, they employed one or more individuals in each of at least 20 calendar weeks, or if they paid wages of $1,500 or more during any calendar quarter of either the current or preceding calendar year.

State Taxes

All states finance UC primarily through taxes from subject employers on the wages of their covered workers. In addition, three states (Alaska, New Jersey, and Pennsylvania) collect taxes from employees. These taxes are deposited by the state to its account in the UTF in the US Treasury, and are withdrawn as needed to pay benefits.

Provision Relating to Advances

If it is anticipated that the balance in a state’s unemployment fund will become insufficient to pay benefits during a specified period of time, the state’s Governor may request an advance from the Secretary of Labor. Such advances are made from the Federal Unemployment Account (FUA) in the UTF, and must meet the requirements of Title XII of the SSA.

To assure that a state will repay any advances it secures from the fund, the law provides that when a state has an outstanding advance balance on January 1 for two consecutive years, the full amount of the advance must be repaid before November 10 of the second year, or the Federal tax credit employers receive will be decreased for that year and further decreased for each subsequent year that the advance has not been repaid. The additional taxes paid as a result of the reduced credit are used to repay the outstanding advances.

Experience Rating and the Federal Requirements

Experience rating is the system used by state unemployment agencies to assign tax rates based on objective factors bearing a direct relation to unemployment risk. The idea is that employers with the lowest risk of unemployment should pay the least amount of state unemployment taxes and employers with higher risk should have higher tax rates. While experience rating provisions of state laws vary Federal law permits:

  • Reduced rates (rates below the 5.4 standard or basic rate) may be assigned to employers with at least 1 year of experience based on the measurement of factors used bearing a direct relation to unemployment risk; and
  • Reduced rates (but not less than 1.0 percent) may be assigned for newly subject employers on a reasonable basis.

An additional tax credit may be taken against the FUTA tax based upon the variation in tax rates but in order to obtain the maximum credit the experience rating system must assign employers with the least favorable experience a tax rate of at least 5.4 percent.

State Requirements for Experience Rating

All state laws provide for a system of experience rating under which individual employer’s tax rates vary from the standard rate based on some measurement of unemployment risk. The type of experience rating systems and the factors used to measure unemployment risk vary from state to state. Whatever factors are used to measure unemployment risk must be measured in a uniform way so that all employers are treated equally and the measurement of all employers occurs over the same period of time.

The primary factor used to measure unemployment risk in state experience rating systems are the number of claims made by former employees against the employer’s account in the state experience rating system. Other factors that measure unemployment risk include the size of the employer’s payroll, contributions paid into the state unemployment fund minus benefit payments paid out of the account, and variations in payroll over time. At present there are four distinct experience rating systems used by states, usually identified as reserve-ratio, benefit-ratio, benefit-wage-ratio, and payroll variation formulas. A few states have hybrid methodologies that combine the ones mentioned above.

state-taxable-wage-base-and-rates

State Taxable Wage Base and Rates

Forty-eight (48) states have adopted a higher taxable wage base than the $7,000 now provided in FUTA. In all states, an employer pays a tax on wages paid to each worker within a calendar year, up to the amount specified in state law. In addition, most of the states provide an automatic adjustment of the wage base if Federal law is amended to apply to a higher wage base than that specified under state law. As a result of the many variables in state’s taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state.

Taxable wage bases

State Taxable Wage Base Wages Include Remuneration over $7,000 if Subject to FUTA State Taxable Wage Base Wages Include Remuneration over $7,000 if Subject to FUTA State Taxable Wage Base Wages Include Remuneration over $7,000 if Subject to FUTA
AL $8,000 x AK $39,500 x AZ $7,000 x
AR $10,000 x CO $12,600 x CT $15,000 x
DE $16,500 x DC $9,000 x FL $7,000 x
GA $9,500 x HI $45,900 x ID $38,200
IL $12,960 x IN $9,500 x IA $29,900 x
KS $14,000 x KY $10,200 x LA $7,700 x
ME $12,000 x MD $8,500 x MA $15,000 x
MI $9,000 x MN $32,000 MS $14,000 x
MO $12,500 x MT $32,000 x NE $9,000 x
NV $30,500 x NH $14,000 NJ $33,700 x
NM $24,200 x NY $11,100 x NC $23,500 x
ND $35,500 x OH $9,500 OK $17,600
OR $39,300 x PA $10,000 x RI $23,000 24,500 x
SC $14,000 x SD $15,000 x TN $7,000 x
TX $9,000 UT $34,300 x VT $17,600 x
VA $8,000 VI $24,200 WA $47,300
WV $12,000 x WI $14,000 x WY $24,700 x
State error rates can reach up to 15% meaning that companies can easily be incorrectly charged. With an unemployment claims solution, however, money stays at in employers’ accounts and risk of errors becomes minimal.

Unemployment Insurance Coverage

As indicated previously, FUTA applies to employers who employ one or more employees in covered employment in at least 20 weeks in the current or preceding calendar year, or who pay wages of $1,500 or more during any calendar quarter of the current or preceding calendar year.

State legislatures tend to cover employers or employment subject to the Federal tax because, while there is no compulsion to do so, failure to do so is of no advantage to the state and a disadvantage to the employers involved in terms of FUTA taxes due. While states generally cover all employment which is subject to the Federal tax, they also may cover some employment which is exempt from the tax, such as smaller employers of agricultural labor and domestic service. Employers who do not meet the specific monetary or number of employee requirements are excluded from liability for unemployment taxes.

unemployment-benefit-rights

Unemployment Benefit Rights

There are no Federal standards for benefits in terms of monetary qualifying requirements, benefit amounts, or duration of regular benefits. Hence, there is no common pattern of benefit provisions comparable to that in coverage and financing. The states have developed diverse and complex formulas for determining workers’ benefit rights.

An individual’s benefit rights are determined using wages and employment during a period of time called the base period. Base periods vary among state but generally cover a period of four consecutive completed calendar quarters. Benefits are paid during a period of time called the benefit year. Individuals who exhaust their benefits before the end of a benefit year must wait until a new benefit year is established before they can again qualify to receive benefits.

The qualifying wage or employment provisions attempt to measure the worker’s attachment to the labor force. An insured worker must also be free from disqualification for causes which vary among the states. Majority of states require claimants to serve a waiting period before their unemployment may be compensable.

All states determine an amount payable for a week of total unemployment as defined in the state law. Usually a week of total unemployment is a week in which the claimant performs no work and receives no pay. In most states workers are partially unemployed in a week of less than full-time work when they earn less than their weekly benefit amount. The benefit payment for such a week is the difference between the weekly benefit amount and the part-time earnings, usually with a small disregard as a financial inducement to take part-time work.

Qualifying Wages and Employment

All states require that a claimant must have earned a specified amount of wages or must have worked a certain number of weeks or calendar quarters in covered employment, or must have met some combination of the wage and employment requirements within his/her base period, to qualify for benefits. The purpose of such qualifying requirements is to restrict benefits to covered workers who are genuinely attached to the labor force.

Benefit Eligibility and Disqualification

All state laws provide that, to receive benefits, a claimant must be able to work, available for work, and actively seeking work. Additionally, a claimant must be free from disqualification for voluntarily leaving without good cause, discharge for misconduct connected with the work, or refusal of suitable work. The purpose of these provisions is to limit payments to workers who are unemployed through no fault of their own.

In all states, claimants who are held ineligible for benefits because of inability to work, unavailability for work, refusal of suitable work, or any other disqualification are entitled to a notice of determination and have the right to appeal the determination.

Benefit Calculation

Most states measure unemployment in terms of calendar weeks. Under all state laws a weekly benefit amount, that is, the amount payable for a week of total unemployment, varies with the worker’s past wages. The amount payable is subject to certain minimum and maximum limits. The formulas for calculating benefits from these past wages vary greatly among the states.

Standard and Alternate Base Period

All states require a worker to have earned a certain amount of wages, worked for a certain period of time or both to be monetarily eligible to receive unemployment compensation benefits. Generally, an individual’s wages are drawn from a one-year period (four calendar quarters) to calculate eligibility. The standard base period (SBP) used by all the states (except Massachusetts, which uses the last four completed calendar quarters) to determine claimant eligibility for unemployment benefits is the first four of the last five completed calendar quarters.

For workers failing to qualify under the SBP, states use an alternative base period (ABP). Under the ABP, generally the last four completed calendar quarters are used to determine claimant eligibility for benefits. For example, if the worker fails to qualify using wages and employment in the first four of the last five completed calendar quarters, then the state will use wages and employment in the last four completed calendar quarters.

An Example of How Base Periods Work

Previous Year

Current Year

1st Quarter January 1 – March 31

2nd Quarter April 1 – June 30

3rd Quarter July 1 – September 30

4th Quarter October 1 – December 31

5th Quarter January 1 – March 31

Standard Base Period

Wages paid during these four quarters make up Standard Base Period.

Alternate Base Period

Wages paid during these four quarters make up Alternate Base Period.

Quarter an employee applied for benefits (Does not count as part of Base Period) April 1 – June 30

Finally, several states use an extended base period (EBP) so that individuals who have no wages in the current base period may qualify for benefits using older wages and employment under certain conditions These conditions typically involve illness or injury. For example, for a worker who was injured on the job and who has collected workers’ compensation benefits, the state may use wages and employment preceding the date of the worker’s injury to establish eligibility.

Unemployment Benefit Amounts by State

State

Maximum Week of Benefits

Minimum Weekly Amount

Maximum Weekly Amount

Maximum Dependency Allowance

26

$45

$265

26

$56

$370 – $442

$72

26

$164

$240

25

$81

$451

26

$40

$450

26

$25

$573

26

$15

$688

$75

26

$20

$330

26

$50

$432

12

$32

$275

14

$44

$330

26

$5

$619

Idaho

21

$72

$414

25

$51

$458 – $627

$170

26

$37

$390

26

$68

$455 – $559

$104

Kansas

16

$118

$474

26

$39

$448

26

$10

$284

26

$73

$627

$209

26

$50

$430

$40

30

$42

$769 – $1,153

$384

20

$147

$362

$30

26

$25

$693

26

$30

$235

13

$35

$320

28

$153

$518

Nebraska

26

$70

$414

26

$16

$439

26

$32

$427

26

$100

$681

7%

New Mexico

26

$81

$483

$50

26

$100

$430

13

$15

$350

26

$43

$606

26

$128

$443 – $598

$155

26

$16

$506

26

$141

$604

26

$68

$569

$8

26

$51

$566 – $707

$141

20

$42

$326

26

$28

$390

26

$30

$275

Texas

26

$67

$494

26

$30

$543

26

$77

$466

26

$60

$378

26

$169

$713

26

$24

$424

26

$54

$370

26

$34

$475

trade-adjustment-assistance-extension-act

Trade Adjustment Assistance Extension Act of 2011

Employers and government share in the cost and responsibility of administering the UI program. States are required to make sure that individuals receiving UI benefits have met the eligibility requirements, and employers are responsible for providing the states with information critical in that determination. For this reason, states notify employers when a request for benefits is made, specifying a time limit for employers to respond. Many UI benefit overpayments are the result of late, incorrect, incomplete or missing employer responses to state UI claim notices.

Once the issue of UI overpayments drew the attention of policymakers, the U. S. Department of Labor subsequently unveiled a comprehensive system of reforms under its UI integrity initiative. One aspect of this initiative, included in the Trade Adjustment Assistance Extension Act of 2011 (TAAEA), required states to enact laws that prevent employer accounts from being relieved of UI benefit overpayments resulting from the employer, or the employer’s agent, failing to timely and fully respond to state UI information requests.

UI Integrity Law Overview

The TAAEA directs all states (including the District of Columbia, Puerto Rico and the Virgin Islands) to prohibit the non-charging of UI benefit overpayments to an employer’s account that are the result of failure by any employer, both experienced-rated and reimbursing, or the employer’s agent, to respond timely or adequately to the state’s request for information relating to a UI claim, if a pattern of failing to respond to such requests has been established. Federal law does not define “pattern of failure” but gives the states the freedom not only to define the term but to impose other sanctions as well.

States were required to adopt this UI integrity provision with overpayments occurring after October 21, 2013. Otherwise, employers risked losing the 5.4% maximum federal unemployment insurance (FUTA) credit, increasing the FUTA tax rate employers would pay from 0.6% to 6.0%.

All of the states have adopted the UI integrity law or have implemented administrative policies that have a similar result.

unemployment-insurance-california

Unemployment Insurance in California

In California, employers are liable for UI taxes once they have paid more than $100 in wages in a calendar year. This is unlike many other states that follow the rules for UI tax liability under the FUTA. Under federal rules, employers don’t become liable for UI tax until they either:

  • pay at least $1,500 in wages in any calendar quarter, or
  • have one or more employees in each of twenty calendar weeks.

State UI tax is paid on each employee’s wages up to a maximum annual amount. That amount, known in California as the taxable wage limit, has been stable at $7,000. However, it can change.

The state UI tax rate for new employers can also change from one year to the next. The UI tax rate for new employers in California is 3.4 percent (.034) for a period of two to three years. Established employers are subject to a lower or higher rate than new employers depending on experience rating.

In California, UI tax returns and payments are combined with other payroll tax reports and payments. The returns and payments generally are due a month after the close of each calendar quarter. In other words, they are due by the following dates:

  • 1st Quarter returns and payments due on or before April 30
  • 2nd Quarter returns and payments due on or before July 31
  • 3rd Quarter returns and payments due on or before October 31, and
  • 4th Quarter returns and payments due on or before January 31.

All tax payments must be submitted with a completed Payroll Tax Deposit (DE 88/DE 88ALL) unless payments are made by Electronic Funds Transfer (EFT) or credit card using e-Services for Business. Apart from filing a DE 88 to make a payment, employers also need to separately file a Quarterly Contribution Return and Report of Wages (DE 9) and Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C). Larger employers are required to file these forms electronically.

Employers can rely on timely and detailed responses to state enquiries through an automated UCM system, and achieve improved compliance as well as the overall handling of UI claims.

The Unemployment Benefits Process

To initiate the process of receiving unemployment benefits from unemployment insurance, the former employee must file a claim with the Employment Development Department (EDD). An employee can file a claim with the EDD online, through the mail or over the telephone. There is no specific time period in which the employee must file a claim. An employee can file a claim any time he or she is terminated or his or her hours are reduced. After a claim is filed, there is a mandatory one-week waiting period in which the EDD will process the employee’s claim and determine whether or not the employee is eligible to receive unemployment benefits. The EDD will conduct interviews with the employee, employer and anyone else it believes it is necessary to determine the employee’s eligibility for unemployment benefits.

The requirements an employee must satisfy to receive unemployment benefits are:

  • Employee must file a claim;
  • Employee must be unemployed or have substantially reduced work hours through no fault of his or her own;
  • Employee must be able to work and available for work;
  • Employee must be actively seeking work;
  • Employee must have earned enough money during the base period;
  • Employee must meet the eligibility requirements each week benefits are claimed.

After filing a claim, the EDD re-verifies that the employee still satisfies each of these requirements every two weeks. If at any time the employee does not meet one of these criteria, The EDD can reexamine whether the employee is entitled to unemployment benefits.

Tips for Responding Effectively to an EDD Unemployment Claim

After an employee files a claim for unemployment, the EDD will mail an employer the form Notice of Unemployment Insurance Claim Filed. Employers have 10 days to contest in writing the receipt of unemployment benefits by the specific employee. This response should contain all relevant facts that demonstrate the employee is not eligible for unemployment benefits. The most common way for an employer to contest an employee’s claim is to dispute that the employee was terminated, discharged, etc. through no fault of his or her own. An employee can ask for unemployment benefits only if the employee was fired, laid off, or otherwise terminated for no real reason. If the employee engaged in wrongdoing or misconduct, they are not entitled to unemployment benefits.

With the smart electronic system, employers can rest assured that all relevant information is available to state agencies, thus minimizing inadvertent human errors.

How to Respond to Unemployment Claims

In California, employers have 10 days to contest the claim and respond to the unemployment claim application.

When responding to an unemployment claim, employers should try to argue that the employee’s misconduct is what led to unemployment. To prove an argument for misconduct, the employer needs to show:

  • The employee owed the employer a duty that was violated. Duties include such standards such as showing up for work, refraining from harassing conduct or fighting, abstaining from theft, etc.
  • There was a substantial breach of the duty owed by the employee to the employer. Single violations of a duty are not generally enough to establish a misconduct unless a major infraction is involved. Usually, there must be proof that the unacceptable behavior had been repeated throughout the employment. Written warnings or documentation to prove these repeated violations or breaches will significantly assist an employer when disputing an employee’s claim for unemployment benefits.
  • The breach must be willful, wanton or deliberate on the employee’s part. This standard measures the employee’s own role in his or her termination. To satisfy this element, the employer must show that the employee was aware of the unacceptable behavior and could have controlled it. Negligence or poor performance is generally not enough and proper documentation can be a valuable tool in this case as well.
  • The breach disregards the employer’s interest and injures or tends to injure the employer’s interest. In order to prove this element, the employer needs to prove that he or she suffered or could have suffered financial loss as a result of the former employee’s actions, or that the employer’s business was significantly interrupted as a result of the employee’s actions. The misconduct must be work related.
  • Finally, the employer must show that there was a final incident that triggered the termination. The EDD usually examines the final incident first and then works backward over the employment relationship. The final incident should contain elements required to prove misconduct.

The following are the examples of misconduct that usually result in a denial of unemployment benefits:

  • Voluntary quitting without good cause;
  • Refusing to work;
  • Violating company rules. The employer has to prove that the employee had knowledge of the rules before they were violated, and that the rules were lawful and reasonable;
  • Poor attendance;
  • Criminal conduct;
  • Use of drugs or intoxication on the job;
  • The employer’s request must be reasonable and the employee’s refusal to compy must be willful and unjustified;
  • Temporary employment;
  • The employee is already working somewhere else;
  • The employee cannot legally work at the U.S.

Employer Response to the Unemployment Claim

Once employers contest an employee’s claim for unemployment benefits, the EDD will gather all necessary information and provide a written decision. If the EDD determines that the employee is ineligible to receive unemployment benefits, the employee’s claim or already existing payments will be denied. After being disqualified, an employee can reapply for unemployment benefits after resolving issues that caused them to be ineligible or disqualified.

If the EDD determines the employee is eligible to receive unemployment benefits, an employer has the right to protest this decision. In that case, the employer must mail in an appeal with the following information within 30 days from the date the EDD mails the notice of its decision to the employer:

  1. Name of the business and the business address
  2. Employer’s reserve account
  3. Employee’s social security number
  4. Name and mailing address of any representative
  5. Reason for the appeal
  6. A copy of the decision that the employer is appealing
  7. If the appeal is late, a reason why the employer failed to comply with the requested 20-day period.

If the employer’s appeal is accepted, the administrative law judge (ALJ) will conduct a hearing in which both the employer and the employee will be present and allowed to put forth evidence, including witnesses. Before the hearing, all of the documents within the file regarding the claim will be available for both parties to review. These documents will include not only the documents provided by both parties, but also any document gathered by the EDD representative overseeing the claim.

An employer does not have to attend the appeal hearing in person. He or she can request to attend the hearing by telephone instead. In this case, the EDD will notify the employer of the telephone number to call and the time of the hearing, along with a copy of the claims file before the hearing.

After the hearing, the ALJ issues its decision to all parties.

Exhaustive nature of the process can put off employers from claims hearings. By outsourcing UCM process, however, a team of analysts takes care of all the necessary information and thoroughly examines if a case has potential for an appeal to a claims hearing.

Appealing to the California Unemployment Insurance Appeals Board

If an employer disagrees with the ALJ’s decision, they have the option to file a letter of appeal with the California Unemployment Insurance Appeals Board (CUIAB). This appeal must be filed within 20 days of the mailing date of the ALJ’s decision, unless the employer can show a good cause for filing it later. In the letter of appeal, the employer must be sure to identify the parties, the case number, the employee’s social security number, the employer’s reserve account, the name and mailing address of any representative, the ALJ’s decision and the reason(s) for the appeal.

After the CUIAB receives the letter of appeal, it will send a letter to acknowledge receipt of the appeal. Within 10 days of this letter, the employer or employee must request to submit written or oral argument. The CIUAB generally does not consider new evidence in its decision, and only grants oral or written argument in cases when time permits or there are unusual cases. The decision whether to accept oral or written argument is solely at the discretion of the CUIAB.

Once a decision is made, the employer will receive written notification in the mail. At this point, all administrative remedies are exhausted. If an employer wants to appeal the CUIAB’s decision, he or she must do so through the court system.

How Does Approval of Unemployment Benefits Affect Businesses

If an employee is ultimately determined eligible for unemployment benefits, the amount of compensation he or she receives will be determined by the employee’s base period earnings. The EDD generally omits the most recent three to five months before the claim and uses the 12 months before the omitted months as the base period.

Once the base period is established, the EDD divides the 12 months into four quarters. The highest quarter of earnings during the base period will determine the amount of benefits the employee will receive each month. The total amount that an employee may receive for a claim is either 26 times the weekly benefit amount or one half of the total base period wages, whichever is less. To be eligible for employment benefits, an employee must have earned at least $1,300 in one quarter of the employee’s base period, or have earned at least $900 in the highest quarter and total base period earnings of 1.25 times the employee’s highest quarter earnings. The minimum amount of benefits an employee can receive each week is $40 and the maximum amount is $450.

If more than one employer hired an employee during the base period, the EDD will request information from those employers regarding the employee’s earnings. A “base period employer’ must respond to the EDD’s request for information within 15 days after the request is mailed from the EDD. The response provided by the base period employer should also include information about why the employee resigned or was terminated from his or her employment with that base period employer. After receiving this information, the EDD will determine if the base period employer’s reserve account should be charged for the employee’s claim for unemployment benefits. If the base period employer fails to respond within 15 days, the base period employer’s reserve account will likely be charged.

In California, an employee that files for unemployment affects the employer if the claim is approved and benefits are paid to the employee. The employer’s unemployment tax rate is based on approved claims.

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Unemployment Insurance Costs

All employers incur a direct or indirect cost when UI benefits are charged to their accounts. For experience-rated employers, benefits charged to their accounts are used in determining their future state UI tax rates. Reimbursing employers are required to pay directly for benefits charged to their accounts.

Employers’ account could be credited for erroneously collected UI benefits, regardless of whether they responded in a timely fashion to the original claim notice. Under the UI integrity provision, once the deadlines are reached for responding to claim notices and other state information requests, employers generally give up their right to have their accounts credited for the overpaid UI benefits.

Also, if employers do not provide complete details regarding the separation from employment, they may be charged for those benefits even if it later found the benefits should not have been paid.

Preventing Improper Payment of Unemployment Insurance Benefits

An improper payment of UI benefits means that a claim for benefits was paid in error. An improper payment of benefits can result when inaccurate information is provided by the claimant or employer, or when information is not received by the California Employment Development Department in a timely manner. Once an improper payment is detected, the claimant is notified of an overpayment.

Employers can reduce costs by taking three critical steps to provide important information to the EDD Unemployment Insurance program:

Reporting all new hires and rehires to the State Directory of New Hires by the due date

Timely and accurate reporting of all new hires and rehires helps prevent payment of ineligible UI claims after an individual has returned to work. Employers must report the date the employee actually began work, not the hire date, if it is different.

Responding promptly to any Request for Verification of Weekly Earnings

A prompt response to a request for verification of employee weekly earnings will help detect and prevent improper payment of UI benefits.

Providing complete and accurate Employee Separation Information

Employers can avoid the need for costly appeals or overpayment of benefits by providing separation information to help determine claimant eligibility for benefits, and as a result, accurate benefit charges to employers.

The Costs and Consequences of Non-Compliance

Companies who do not comply with state and federal UI requirements for providing employee information face a number of preventable costs and consequences, including:

  • Improper account charges for benefits paid to ineligible claimants;
  • Increases in employer UI taxes;
  • Possible fines and penalties.
UCM electronic solutions combine advanced technology and deep expertise, while ensuring that companies remain compliant with federal and state laws and regulations.
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Unemployment Insurance Compliance

Both employers and state agencies share in the re­sponsibility, as well as the administration, of the UI program. While states are required to ensure that individuals meet eligibility requirements and receive their UI benefits, employers remain responsible for providing the states with the information needed to make an accurate determination. To facilitate this collaboration, states notify employers when a request for unemployment benefits is made and maintain established parameters for timeliness and accuracy of employer response. However, despite the current system, UI benefit overpayments continue to occur as result of late, incomplete, or inaccurate responses to state UI information requests.

While employers used to respond only to those unemployment claims that were considered inaccurate, they are now required to respond to all claims in order to remain com­pliant with state regulations and minimize financial exposure.

A well-planned compliance strategy is essential to help employers avoid UI costs, prevent unnecessary benefit payments, and remain in accordance with various regulations.

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UI Compliance Best Practices

Here are the best practices for maintaining absolute compliance with unemployment insurance.

Employee training

Every employee involved in the hiring and termination process needs to understand how to effectively take the required steps for employee review, document cases of misconduct, and re­spond to requests from state agencies.

Ensure that all employees are aware of company rules and regulations

Employees should be provided with a written copy of rules and regulations, and asked to sign a copy to be placed in their personnel file. In addition to this, they need to be warned that the disregard of company rules could result in disciplinary actions.

Avoid firing employees without a warning

Unless the violation of a company rule or regulation is so serious as to justify the employee’s immediate discharge, there should be a warning. Otherwise, it can be much harder to win the claim and prove that the employee knew or should have known that the behavior would result in immediate termination.

Document everything

In case of an unemployment dispute, proper documentation can make all the difference and help employers win. Therefore, it is necessary to document:

  • Job descriptions, contracts, and offers;
  • Employment policies;
  • Disciplinary actions;
  • Policy changes;
  • Resignation letters;
  • Termination forms;
  • Witness statements.

Update state databases

By responding promptly to state requests and report­ing new hires and rehires, employers ensure that state agen­cies are provided with data necessary for accurate unemployment eligibility determinations.

Provide fast and precise claims response

Accurate, timely and complete documentation in response to unemployment claims can make all the difference since it helps employers avoid penalties for non-compliance and reduce costs.

Use State Information Data Exchange System

Developed through partnership between the U.S. Department of Labor and state unemployment insurance agencies, the State Information Data Exchange System (SIDES) is an electronic tool to help employers respond to state unemployment insurance requests quickly, easily, and accurately.

Speeding up UCM process with automated solution

Automated insurance claim management enables organizations to process claims accurately, consistently and quickly. As a result, companies dramatically improve the efficiency of the processes and achieve significant cost savings.

Outsourcing unemployment claims management can help employers create proper documentation, stay up-to-date with regulations and develop strategies to prevent unemployment tax expense.
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UI SIDES

There are two aspects of SIDES – SIDES for TPAs (Third Party Administrators) or large employers and SIDES E-Response. SIDES for TPAs and SIDES E-Response offer employers a secure, electronic and nationally-standardized format to better anticipate and supply the data needed to respond to UI information requests, reduce follow-up phone calls and streamline UI response processes. Both are web-based systems designed to meet the unique needs of businesses large and small. For employers and TPAs that handle a large volume of UI information requests, SIDES provides an automated, computer-to-computer interface between employers’ and TPA’s IT systems and state agency networks. For employers with a limited number of UI claims, the SIDES E-Response website provides an easy and efficient web-based reporting portal for electronically posting responses to information requests from state UI agencies.

SIDES and SIDES E–Response have the potential to significantly improve the UI information exchange process. Both systems offer significant benefits, such as:

  • Saving time and money;
  • Free use of both systems;
  • Reducing staff time and paperwork;
  • Helping employers keep UI rates as low as possible by reducing overpayments;
  • Providing an electronic, nationally standardized data format;
  • Including data checks to ensure the exchange of complete and valid information.
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Proactive Measures for UI Compliance

Unemployment Insurance is an unavoidable cost that almost every employer is forced to endure. While employers cannot necessarily avoid paying the tax for unemployment insurance, they can reduce the rate of tax that they have to pay by reducing the number of claims filed against them and the amount of benefits paid out on those claims.

In the past, employers often made a choice between responding and not responding to an unemployment claim. Nowadays, employers are not only required to respond to all claims in order to remain in compliance with new state regulations, but to avoid real financial penalties as well.

There are many proactive measures that employers can take to keep unemployment costs low. The crucial part of this process is smart and prudent hiring. This helps prevent layoffs and situations where an employee is simply not a good choice. In addition to this, there should be careful documentation and specific, actionable feedback to provide employees with opportunities to correct problems. Being able to turn around a situation and keep a worker is the most desirable solution for both employer and employee.

It can take the time to establish strong unemployment insurance policies and procedures, but ultimately employers can increase their chances of successfully contesting unemployment claims. This will have a positive effect on their business and help them reap the benefits for years to come.

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