No matter the size of a company, it is important to understand exactly how the unemployment insurance system works and what happens when a former employee files for unemployment benefits.
Letting employees go is a normal function of every business, sometimes necessary to keep companies functioning. This has especially been true in 2020, with the increase of the unemployment rate due to the COVID-19 pandemic, resulting in the surge of unemployment insurance claims.
What is Unemployment Insurance?
Unemployment insurance provides payments to workers who have been let go due to a factor out of their control. In most states, such workers can receive 26 weeks of unemployment benefits and a set percentage of their average annual pay. Unemployment payments are managed at both the federal and state levels, and businesses fund these programs by paying state and federal taxes. In some states, employees also pay a state-level tax to contribute to unemployment funds they may one day use themselves.
If employees have been let go or furloughed, they may file unemployment insurance claims with the state they live in. However, if employees were fired for misconduct or company policy violations, they are probably ineligible to collect unemployment benefits.
Unemployment insurance claims are notifications to the state, the federal government, and the previous employer that former employees are seeking unemployment insurance benefits. Given the significant costs of unemployment insurance claims, such as the higher tax rate with a long-term impact on businesses, employers need to have a solid understanding of their life cycle to ensure that the unemployment program is as cost-effective as possible.Use this detailed guide on UI compliance to learn how to effectively handle unemployment claims while reducing unemployment tax expenses.
Unemployment Insurance Claims Steps
There are different steps within the life cycle of unemployment insurance claims:
The unemployment insurance claims process begins with an employee separation. The reason for the permanent or temporary separation can be crucial in determining the employee’s eligibility for unemployment benefits. Thus, employers should pay attention to their state’s reasons for disqualification and accurately document reasons for separation to be able to challenge unfounded unemployment insurance claims.
- Claiming Unemployment Insurance Benefits
Once an employee is separated for a particular reason, they will determine if unemployment benefits are something that they want to pursue. If so, they will file a claim.
- Responding to a Claim
Each state has its own set of regulations for responding to employees’ unemployment insurance claims. Once this happens, employers need to review all claims thoroughly and then transmit an appropriate response back to the state.
During this phase, the state uses the claimant’s statement as well as the information provided by the employer to render an initial determination. If the determination is favorable to the employer, the process will stop.
If either party is dissatisfied with the result, they can appeal the decision. Filing an appeal involves filling out forms and including any additional supporting documentation to support the case, so the appeals board can determine the outcome during a hearing.
At the time of the hearing, both parties are usually present in person and have the opportunity to present evidence and testimony regarding the separation. From there, the state agency reviews the claim to determine if it is valid. Each state has its own process, and there may be multiple levels of appeals available before a final decision is made and no further recourse is available.
- Decision and Board of Review
Finally, based on the evidence presented, the hearing officer makes a decision which is mailed to both parties. In most states, a final appeal can be filed with the Board of Review if any of the parties disagree with the decision. The Board reviews the case in its entirety, but no new evidence can be presented at this time. Each member of the Board votes, the majority rules and that becomes their decision. If the party who receives the unfavorable Board decision disagrees with it, the case has to be filed in state court or a similar venue.
Navigating Unemployment Insurance Claims
Contesting an unemployment claim may seem like a straightforward process. However, rules vary from state to state, and sometimes it is not easy to contest unemployment insurance claims, even when the fault may clearly lie with the employees.
One of the steps in effective unemployment claims management is establishing an internal procedure to make sure that UI claims are immediately brought to the attention of the proper individuals. It is critical to immediately establish what really happened because the deadlines for employers to respond to UI claims are usually short. This leaves employers open to additional UI costs because their responses were either late or inadequately investigated before the claims were filed.
Finally, employers cannot routinely accept or oppose all UI claims. Instead, they need to make a decision about whether to contest unemployment insurance claims based on costs, administrative burden, and strategic considerations. On the other hand, outsourcing this process helps employers audit claims, decide which claims are warranted, and prepare for an unemployment claim hearing in advance. Today’s companies have to comply with an absolutely overwhelming number of employment regulations, and with the COVID-19 pandemic, things are getting even more complicated. However, automated unemployment insurance claims administration ensures that employers are always in compliance with employment regulations while helping them understand what unemployment tax rates they should be paying.