Tim Twigg and Rebecca Crane
The dreaded unemployment insurance paperwork arrives for an employee who quit your business weeks ago. You’re angry because quitting should eliminate the chance of the ex-employee receiving unemployment compensation. You think, Why should I have to be responsible for this? It was his choice to resign. I’m going to fight this.
After taking the time to meticulously complete the paperwork, you await the decision. Weeks later, much to your dismay, unemployment compensation is awarded. Worst of all, your account will be charged. Why? It turns out the employee was ruled to have “just cause” for quitting. This goes against everything you thought you knew about unemployment compensation and leaves you feeling, among other things, confused.
Sound familiar? It wouldn’t be surprising if most — or even all — of you reading this have experienced a situation much like this. As a result, you wonder if there is anything you can do to prevent this from occurring again.
This article is intended to be a basic guideline for employers on the unemployment insurance program as a whole. Unemployment insurance is both a federal and state program, meaning that the federal government sets forth some regulations, but the unemployment insurance program is mostly run by state entities. Specific details for each state can be obtained by contacting your local employment development department.
Purpose — The Federal-State Unemployment Insurance Program provides unemployment benefits to workers who are unemployed through no fault of their own and meet certain eligibility requirements. Criteria for establishing no fault and eligibility are defined by individual state laws. If unemployment insurance is awarded, then the subsequent benefit payments offer financial assistance during the time the worker is unemployed.
Financing — As a jointly financed program through federal and state taxes, employers pay into both state and federal unemployment insurance programs through payroll taxes. These taxes are applicable when employers pay wages to employees totaling $1,500 or more; or when they had at least one employee during any day of a week during 20 weeks (need not be consecutive) in a calendar year.
Under the provisions of the Federal Unemployment Tax Act (FUTA), the federal tax is charged at a current rate of 6% on the first $7,000 paid in wages to each employee during a calendar year. If the employer pays his or her state unemployment tax on a timely basis, then the law provides a credit against federal tax liability of up to 5.4%.
Thus, the net FUTA tax rate generally paid by employers is 0.6%, which results in a maximum tax of $42 per employee per year.
The state tax amount paid by the employer depends on the number of employees, the state’s taxable wage base, and the contribution rate assigned to the employer. Unlike FUTA, states may apply a higher taxable wage base that is more than $7,000.
Therefore, the taxable wage base can vary greatly from one state to the next. For example, Oregon’s taxable wage base is $32,300, but Ohio’s is only $9,000.
The contribution rate assigned to employers is based on their “experience.” Experience rating systems are designed to encourage employers to stabilize employment and equitably allocate the costs of unemployment.
In all states, new employers pay a “new employer rate” until they meet the requirements for an experience rating. There are four different systems for calculating an experience rating; therefore, each state is a little different. “Rate schedules” are then used to convert the results of the experience calculations into the employer tax rate.
The tax rates depend on the state’s fund balance, whereby low balances trigger schedules with higher rates and higher balances trigger schedules with lower rates. Each state has two different schedules that can be used to assess the rate — a most favorable schedule and a least favorable schedule. The schedule is chosen based on the amount in the fund. Each schedule has a corresponding range of rates that can be applied.
As you can see, an employer’s experience rating is just one of the factors in determining the employer’s overall tax rate, some of which are beyond your control. While it is prudent to manage your business in such a way that minimizes turnover, it is also important to know that your tax rate is not solely dependent on that aspect but is merely a part of it.
Eligibility — In terms of eligibility, workers have to meet two tiers of eligibility requirements. One is called monetary entitlement. Simply put, monetary entitlement is the calculated total benefit and the length of time the worker may receive unemployment compensation.
The other eligibility requirement is referred to as non-monetary. This requirement is probably the one most employers know about because it determines why the person is unemployed and whether or not that reason enables him or her to receive unemployment compensation.
In general, workers must be unemployed through no fault of their own. In addition, the worker must be available and actively seeking work. This would lead most of us to assume that a worker quitting would disqualify him or her from receiving unemployment benefits, but that is not necessarily true.
In order to be eligible for unemployment benefits when a worker quits, he or she must show that he or she quit with “good cause.” In some states, good cause must be shown to be work-related or involving fault on the part of the employer in some way.
Other states are more liberal, allowing good cause to be personal in nature. For example, a worker must relocate due to his or her spouse changing jobs. The good cause exceptions are numerous and vary greatly from state to state.
There can be a disqualification of benefits based on a discharge for misconduct. The definition of misconduct was established in a 1941 Supreme Court Case and has been accepted by most states as “conduct evincing such willful or wanton disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree as to manifest an equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer’s interest or of the employee’s duties and obligations to his employer.”
Furthermore, many states provide a heavier disqualification for discharges resulting from a dishonest or criminal act, otherwise known as “gross misconduct.” By “heavier,” the employment department means that the disqualification for unemployment benefits lasts longer. For example, in some states the disqualification lasts for one year.
Filing a claim — Workers have a basic right to file claims for unemployment anytime they are unemployed. This can include instances in which the worker is partially unemployed. Partial unemployment occurs when, for example, a worker’s hours are reduced or the worker is off due to the business closing for some period of time. A worker is partially unemployed when he or she does not work full-time and weekly earnings are less than the weekly benefit amount. If all other eligibility requirements are met, then the worker is likely to receive unemployment insurance payments equal to the difference between the weekly benefit amount and the earnings (if any) during the week(s) reported.
Duration of benefits — If benefits are awarded after everything outlined above has been taken into consideration, there is a limit as to how long unemployment insurance payments will last. The total duration of payments varies by state, but is typically 26 to 30 weeks. Extensions can and do occur depending on the situation.
Charged accounts — While it may be that benefits are granted, that does not necessarily mean that your account will be charged. In some cases, even though you may be charged, it may not be for the full amount. Unemployment insurance costs may be shared among several employers who employed the worker within the qualifying “base period.” There are three different methods that can be used in assessing which previous employer will be charged for the unemployment costs, all of which are too detailed to present here. Just know that the rule has already been established and may have little to do with the worker’s employment at your business. Also, many states have provisions that do not allow an employer’s account to be charged when the employment relationship only lasted a few weeks.
Appeals — When either party disagrees with the final decision by the employment department, they both have the right to an appeal. An appeal offers “opportunity for a fair hearing before an impartial tribunal, for all individuals whose claims for unemployment compensation are denied.” Employers have a right to an appeal when unemployment compensation has been awarded and it is their belief that the money is unjustified. Each state varies in the deadline for filing appeals, but it typically ranges from five to 30 days after the decision has been rendered.
Summary — To some extent, the unemployment insurance program is part of the cost of doing business. In most cases, the employer can do little about it. The absolute best thing an employer can do to control costs is focus on managing the business effectively to keep turnover to a minimum. When an unemployment claim comes your way, choose whether or not the energy, time, and stress in fighting the claim are really worth it in the long run. Odds are it’s not.
For example, if your rate went up by 0.2% in Ohio, then you would pay only $18 more per employee per year (that’s only $324 per year if you had seven employees). You’d be better off just doing another crown procedure.
Instead, focus your attention on what you could have done differently to prevent the termination from occurring. If you can identify this and correct it, this is where you’ll find the most cost savings for your business.
Tim Twigg is the president of Bent Ericksen & Associates, and Rebecca Crane is a human resource compliance consultant with Bent Ericksen & Associates. For 30 years, the company has been a leading authority in human resource and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. To receive a complimentary copy of the company’s quarterly newsletter or to learn more about its services, call (800) 679-2760 or visit the website at www.bentericksen.com.
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