Unemployment claims are filed by an employee after termination of employment. When a claim is filed, employers receive notification from the state regarding the claim. It is essential to know what your responsibilities are when validating and responding to a claim. Failing to respond to an unemployment claim promptly could result in penalties in the form of increased SUTA rates. It helps to get to know the unemployment claims process. Here’s the skinny:
What is unemployment insurance?
Unemployment insurance benefits provide temporary financial assistance to those unemployed through no fault of their own. The program is a joint state-federal program. While all states follow the same guidelines established by federal law, each has its unemployment insurance program and rules for administering it. So, it’s essential that you familiarize yourself with those rules, especially if your company operates in multiple states.
Who funds unemployment insurance?
Employers and employees fund unemployment insurance through payroll taxes paid to the government. There are both federal and state components.
- Federal Unemployment Tax Act (FUTA) tax is an employer-only paid tax currently set at 6%. Only the first $7,000 that each employee earns per calendar year is taxed.
- State Unemployment Tax Act (SUTA) tax is primarily an employer-paid tax though some states require employees to pay a portion. The amount of SUTA taxes you pay depends on the state in which you operate, as each determines its taxable wage base. That taxable wage base, or the maximum amount of your pay that will be taxed, can vary greatly. For example, Alabama has a wage base of $8,000 while Alaska’s is $43,600. The company’s employee count, amount already paid into the unemployment system, and claim history can also affect their SUTA rate.
Who is eligible for unemployment insurance?
Unemployment benefits are for individuals unemployed through no fault of their own. These circumstances include lay-offs due to a lack of available work or company closures. In addition, the employee must meet state requirements relating to the length of employment and wages earned within a specific period. Generally, employees fired for misconduct or who quit voluntarily are ineligible for unemployment benefits.
What is the claims process?
First, a terminated individual files a claim through their state’s unemployment office. Second, the employer receives a notification from the state unemployment office regarding the claim. Usually, the employer has ten days to respond to the claim indicating they wish to protest it. If a claim is being protested, the employer will need to provide details such as the employee’s role within the company, dates of employment, and a termination reason. Failure to comply with these rules may result in a former employee receiving unemployment benefits when they should not be eligible to collect benefits. Lack of timely response to a claim is also an indication of acceptance and may limit your ability to protest the claim later.
When should you fight a claim?
It is worth contesting a claim if you believe it to be inaccurate or misleading, or if you’ve fired an employee for cause. For cause terminations, can include many types of misconduct that would render an employee ineligible for unemployment, including:
- Deliberate violation of company policies and rules
- Persistent absenteeism and tardiness
- Failure to follow instructions
- Unacceptable behavior including alcohol and drug use at work, theft, fighting, falsifying information, or using abusive, offensive, or threatening language
You can also fight a claim when an employee voluntarily leaves your company without good cause or to accept another position. It is important to remember that only the Unemployment Insurance Agency has the authority to approve or deny a claim based upon the evidence provided by the employee and the employer.
How do you contest a claim?
To contest the claim, you will be asked to provide details of the termination, misconduct, or voluntary departure to the state’s unemployment office. Upon receipt of these details, your company and the former employee will receive a ‘Notice of Determination’ indicating whether or not the state has determined that your protest is valid and timely. Even if the state rules in your favor, the employee can still appeal the decision. If the appeal is successful, the state unemployment office will conduct a telephone hearing between your company, the former employee, and any legal counsel.
When the claim process reaches this stage, you need to discuss the hearing with your human resources team and make the necessary preparations. This involves gathering all the necessary witnesses and documentary evidence. These can include:
- Attendance records
- Resignation letter
- Written records of disciplinary actions taken leading up to the termination
Gathering such evidence is essential as the burden of proof lies on the with the employer to demonstrate to the state that the termination was for cause.
When should you accept a claim?
If you terminate an employee because there is not enough available work, or for some other reason beyond their control, they are eligible for unemployment benefits. In which case, you should accept their claim.