8 Ways Unemployment Claims Affect Your Business
Unemployment claims is a small source of income for employees who were laid off from their workplaces through no fault of their own. It is paid by state governments from unemployment taxes collected from their respective employers. The ex-employee makes a request to the labor office citing unlawful terminations. The labor office will weigh their case then determine whether he or she is eligible. This payment is often payable for a set number of weeks. This short period is meant to encourage the ex-employee to seek work or other sources of revenue. There are several ways in which unemployment claims affects your business.
1. Your Contribution Rises. The number of former workers collecting unemployment claims from the labor office affects your contributions. Mass or frequent layoffs will create a huge number of your former employees who will be collecting the claims. This will be used to raise your contribution rates relative to your size and revenue as a firm. That’s why you have to always follow the law when seeking to terminate a contract, or layoff an employee. Most stable employers pay lower contribution rates relative to their size due to this policy. That’s because rarely do their ex-employees collect the unemployment claims.
2. Tax Ratings. This is also known as experience rating. It is based on a calculation that your state’s employment security agency draws about you. The figure represents the risk factors associated with you relative to the frequency of unemployment payments. It is computed as your contribution ratio relative to your total workers’ wages over a set period of time, usually given as five years. If your frequency and amount of drawdown are high, then the employment security agency will put you at a higher tax rate. If ex-workers can prove to the labor office that he couldn’t have been fired, then your risk factor and unemployment tax rate goes up.
3. Types of Employees. The state’s unemployment laws may affect the employment contracts. That’s because there are employees who are automatically ineligible for unemployment claims. This includes independent contractors and short-term employees usually lasting less than 30 days. You should go through the IRS Employer’s Tax guide to figure out who constitutes an employee and who doesn’t. This will help you especially if your business works with lots of people on a very short term basis. You should then compare the IRS guide with the state employment laws before making a decision on the contracts that you draw up with workers.
4. Company Reputation. A long history of many workers filing for unemployment claims may invite an expensive audit from the labor office and even the IRS. This will dent your reputation among large clients and also competent potential employees. There are firms that have a policy of not entering into any type of business contract with firms that have a long history of labor violations. This will, in turn, affect your revenue and ability to attract major accounts and larger sales volume. It will also dent your ability to attract and retain competent employees to fill up some of your vacant slots in the business.
5. Nature of the Work Separation. The nature of work separation/termination shapes your company laws in relation to the state’s work termination laws. Before an ex-employee can receive unemployment benefits the issue of eligibility comes in. This will be determined by the nature of work separation/termination. Once the claim has been filed the labor office will seek to determine whether the termination was voluntary or involuntary and whether it was qualifying or disqualifying. This will definitely way on the company laws with which you use to termination employee’s contracts. There are many different types of work separation each weighed differently by the labor office during the filing.
6. Number of Employees. The contribution to unemployment claims is determined not only by the type but also a number of employees. The rules on the number of employees involved vary from state to state. For privately taxed employers the number of employees affects the size of employee’s taxable wage base. This is usually computed as the number of employees multiplied by $7000 or $9000. Small firms with little UI contributions feel a greater impact from the pay-out than larger firms with more workers and larger taxable wage base. A tax-exempt non-profit with less than four workers is usually exempt from the liability.
7. The Hiring Process. Given the penalties and the potential rise in the contribution, you have to be careful who you hire. Their unemployment claims are likely to affect your interview, background check, and hiring process. Litigious employees with a history of filing unlawful UI claims shouldn’t be hired. In the event that an ex-employee files for wrongful discharge you may increase your reprieve if you win the unemployment compensation hearing. That win will also increase your chances of successfully disputing the wrongful termination charge. You have to carry out due diligence and ensure that you aren’t hiring someone with a history of litigiousness.
8. Burdens Claims Handling. Handling unemployment benefit claims is a long, tiring, burdensome, and costly process. Therefore, it will cost you time and money to bring the process to completion. Therefore, you either have to take time and read the state’s unemployment records or hire an attorney who understands them. The labor office can help you understand which types of terminations makes an employee eligible for unemployment benefits. This means you also have to invest in proper record keeping for all employees’ data. In case you are informed about an UI filing you can involve a lawyer and your HR to challenge the claim.
At the end of the day, the biggest determinants of your unemployment claims are your hiring and your firing process. As long as you are bale to conduct due diligence and ensure that all your terminations are lawful then your unemployment claim filings will always be low. Stick to the law even when the process proves harder than just sending the worker away.