In 2020, millions of Americans filed first-time unemployment claims.
Since state unemployment insurance tax rates are not fixed and are directly related to the number of former employees who successfully file successful claims, fighting all claims seems like the obvious choice. Although you may think that contesting an unemployment claim is a straightforward process, this is not always the case. Often, employers do not prevail.
That is why it’s imperative you effectively manage the risks associated with unemployment claims, creating a compliance strategy that continually protects your business. While it may seem reasonable to fight all unemployment claims, there are numerous reasons this approach is not recommended.
As an Employer, How Do Unemployment Claims Work?
Letting an employee go is never a simple choice. However, sometimes it’s necessary for the success of your business.
Once an employee becomes unemployed, they may be eligible to collect unemployment benefits. For example, if you are downsizing and you have to let some employees go, those individuals will be eligible. At this point, they would apply, and if approved, the state will provide them with monetary benefits.
Of course, this money doesn’t just appear — you, the employer, pays into this program.
Although the federal unemployment tax rate is fixed, state tax rates are not. While these tax rates vary from state to state, your SUTA tax rate is determined by variables such as your industry and how many former employees have claimed unemployment benefits.
If a former employee does decide to file for unemployment, here’s what you can expect:
You will receive a notice from the state.
At that point, you can either accept or contest their claim.
If approved, your SUTA will probably go up.
Regardless of the outcome, you need to take action. Before you contest, you need to think about the possible consequences of that action.
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Why You Shouldn’t Always Fight an Unemployment Claim
When former employees file unemployment claims, this can directly impact your bottom line in terms of unemployment insurance. However, these costs may be minor in comparison to scenarios when you fight back.
1. The former employee has submitted a factual claim
When a former employee files for unemployment, they must provide detailed information about their case. If the claim is legitimate, it is not recommended that you fight it. For example, if you let an employee go because of financial constraints or a lack of work, these are legitimate claims. Even when you do accept, that individual does not automatically receive benefits. The state may deny their application if there are errors.
2. If a claim is fraudulent, you may not have enough proof
Millions, if not billions, of erroneous unemployment benefits are paid out each year. When an employee files a claim, the burden of providing proof often shifts to the employer — even if you know the claim is fraudulent. Even if the scenario seems cut-and-dried, if you want the claim to be denied, you would need substantial evidence. Insufficient record-keeping will clearly hinder this process. Once you do fight a claim, that former employee may file a wrongful termination lawsuit. If you take this route, you need to have a solid case.
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3. Your actions could impact workplace morale and productivity
Most employers may want to fight claims to send a message to the other employees. However, this can backfire. Whether a terminated employee has friends in the office or not, those who still work for you will not likely appreciate how you handled the situation. You need to consider your current workplace morale in terms of productivity. Remember, employee satisfaction and retention are key indicators for business success. So long-term, you may want to reconsider sending a clear “message” to your employees who were not fired.
4. Lawsuits are expensive
Unfortunately, no matter how you handle a termination, when an employee is fired, they are likely to be upset. Even if the ex-employee was in the wrong, all it takes is for them to convince their attorney and the courts that they were treated differently than their co-workers. This will cost you a significant amount of money, not to mention time away from your business. This will cut into your bottom line and hinder your current growth.
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America’s Back Office Will Help You Every Step of the Way
When you are running a business, you never think something will happen to you — until it does. That is why you need to take proactive action, especially in terms of human resources.
Documentation is so important in today’s business world and could help you avoid common legal pitfalls. America’s Back Office offers a wide spectrum of HR tools to help you remain organized and compliant. Most importantly, we simplify HR tasks so that you can focus on what matters — the growth of your business.
Some solutions we offer include legal defense support, labor law compliance, employee performance management, unemployment claim management, and more.