Cutting Unemployment Claim Costs for Small Businesses
August 9th, 2013 by Mindy Flanigan
As a small business owner, you might be having a tough time coming to grips with unemployment insurance. At Infiniti HR, we want to help you better understand what this is and how it works so that you may cut down on unemployment insurance costs. It’s a joint federal-state program that allows unemployed workers to receive cash benefits. But as a small business owner, you have to pay every time a payroll is processed, until your employees meet the wage ‘cutoffs’.
Per the Department of Labor website, “The federal-state unemployment insurance program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under state law) and meet other eligibility requirements of state law.”
It is the no fault of their own part that tends to trip nearly every company up, resulting in a rising state unemployment tax rate. Why? Because the burden of proving no fault of their own rests on the employer, and state agencies tend to have a different definition (often a moving target) of this no fault of their own definition.
Unemployment taxes paid to your state are traced back to your company. New businesses are typically given a new business rate that will go up or down each year, depending on how many former employees are able to successfully claim benefits after leaving your company. If your company has a high claims rate, you are likely to see the SUTA rate increase, perhaps to a point where SUTA tax becomes unnecessarily costly to the business.
Say you have 10 employees on payroll. You started out with a 2.7% SUTA rate. If your state maximum is the first $8,000 in wages per employees, that means you will pay about $2,160 in SUTA tax. After a few years, five of those employees have been terminated and have collected unemployment benefits. Now your rate is 6.5%, which results in a tax of $5,200—a $3,040 increase. Yikes!
In order to keep your state unemployment tax costs down, you must put your company in a position to successfully defend itself when a claim is processed.
Here are five ways to minimize unemployment claim costs:
Hire people who are qualified and can do the job. This starts with clear job descriptions and effective candidate screening processes. Hiring someone who you hope will work out and who isn’t trained well, will succeed at collecting unemployment. The state agency will likely say it was your fault for hiring them.
Collect employee signed and written counseling documents. Make sure you can prove the employee was provided with counseling and guidance for a reasonable period of time and simply chose not to improve. Why? Because it may not look like ‘no fault of their own anymore’. You should also collect document dates, times and subject matter of job training decided to help an employee improve.
Reasonableness and timing. If you are terminating an employee for poor performance or policy violations, don’t wait! If there is sufficient prior documentation and this was the last straw, terminate the employment on the business day of or the business day closest to the final infraction. If you terminate an employee for a policy violation on March 1, but your documentation indicates they last violated a policy on February 1, you will lose. They were so bad that you could wait that 30 days? This does not look reasonable.
Respond to your state’s notice of an unemployment claim on time. Missing deadlines means you may lose.
Never be late to a scheduled hearing whether it is in person or via phone. In Virginia, you should be early for a call. If you are late, you may lose.
There is no need to let the costs associated with unnecessarily high unemployment tax eat away at your profits! Put your business in a position to keep the rate down.
Click the link to view our recent blog: The ROI of an Employee Handbook: Does My Company Really Need One? or check back next week for more on human resources, payroll, insurance and benefits.
*Original Post: http://inspiringhr.com/cutting-unemployment-claim-costs.html