If unnecessarily high unemployment tax costs are eating away at your profits — you may be mishandling it.
Many employers view unemployment taxes and related claims as an operational cost that cannot be controlled. This is where they are wrong. First, you must understand the basics behind where your unemployment tax dollars go.
Who is eligible for unemployment benefits?
The Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined by state law), and meet other eligibility requirements of state laws.
It’s the No Fault of Their Own part that tends to trip up companies, 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 different definitions (often a moving target) of No Fault of Their Own.
Unemployment taxes paid to your state are traced back to your company. New businesses are typically given a new business rate, which 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 excessively 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 employee, 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. OUCH!
How can I keep my state unemployment tax costs down?
Eight Tips 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, who lacks the necessary skills out of the gate, and isn’t trained well, will only create a successful candidate for future unemployment claim collection. The state agency will look past their inability to do the job and focus on your unsuccessful training and management to retain them.
- Set clear expectations. Back to the job descriptions: Set clear expectations for the employee so they start with the possibility of succeeding. This is compounded by having employee handbooks and written policies in place that clearly define standards of conduct and what can constitute termination. Employees who knowingly violate policies are less like to win when you have their signed acknowledgement of receipt of the handbook and policies in hand, and you can show their own poor choices led to their termination.
- Document, document, document. Ensure you retain employee-signed, written counseling documents related to policy violations or escalating performance concerns with clear guidelines and expectations on how to improve. You want to be able to prove that the employee was provided with counseling and guidance, over a reasonable period of time, and simply chose not to improve. Why? Because it helps to eliminate the validity of No Fault of Their Own. You should also document dates, times, and subject matter of job training provided to help an employee improve.
- Resigned or constructively discharged? If you think you can beat the system by getting the employee to quit by making it too hard for them to stay, think again. Discriminatory practices under the laws that the Equal Employment Opportunity Commission enforces include forcing an employee to resign by making the work environment so intolerable a reasonable person would not be able to stay. Not only do you risk a lawsuit, the state agency may see through you and find for the employee despite the resignation. It’s one thing to hold an employee accountable and when they understand that they are failing, they choose to separate themselves from the situation. It’s a very different thing to strip an employee from feeling safe enough to stay. Keep your integrity and confront your performance issues head on. Don’t sit back and hope that passive aggressiveness or intimidation will solve your problems for you.
- Minimize unemployment costs related to a lack of work. If you must let a good employee go because the workload can’t support the position, reach into your network to help them find another job quickly. Word of mouth can be a powerful asset in getting hired, and your referral may expedite finding a new job. If you have mass lay-offs, the assistance of a recruiter, or placement service might also help to place displaced workers. While the latter might be a cost at first, the long-term unemployment cost mitigation will be worth it. If you have seasonal workloads, find alternative services that complement your down time and keeps the workforce active. Example: If your window installation and cleaning services wane in the winter, use your cranes and workforce to hang and take down holiday lights for a few months. You can pay at different pay rates for the change in profit-margin, and the staff stability will help you minimize new-hire training each new season.
- Reasonable and timely action. If you need to terminate an employee for poor performance, policy infractions, or misconduct, don’t stall! Assuming there is sufficient prior documentation and this was the last straw, or the behavior was so egregious that it is a terminable offense, terminate the employment on the day of, or close to, the final infraction. It’s okay to take a few days to get your documentation in place, produce a final paycheck, and consult with HR or other internal stakeholders, but if you terminate an employee for a policy violation on March 1st and your documentation indicates the event took place or was assessed on February 1st, your own inefficiency and poor performance will ruin your credibility with state agencies. They were so bad that you could wait 30 days to act? This does not look reasonable.
- Respond to your state’s notice of an unemployment claim in full and on time. Missing deadlines means you may lose by default. Failing to provide the back-up documentation related to your decision also works against you. Building documentation is to build your case against potential legal action. If you have it, use it to defend your decisions accordingly when it’s requested as part of a state unemployment agency case review.
- NEVER be late to a scheduled hearing; in person or via phone. In some states you should be early for a call. If you are late you lose credibility.
There is no need for unnecessarily high unemployment tax costs to eat away at your profits. Simply put your organization in a position to keep the rates down through sound HR and business practices.
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