Unemployment Insurance & Your Business

Unemployment insurance (UI) is often one of the most confusing and potentially difficult issues for a new business owner or emerging entrepreneur to navigate.

This is because unemployment insurance speaks not only to how attractive a company’s compensation package will be to new employees, but it also ensures that your company is adhering with stringent state and federal laws.

No matter what state you operate in, you will almost certainly be required to pay unemployment insurance for at least some of your employees. Not all workers, however, will qualify for unemployment insurance, so you will not be obligated under state or federal law to pay unemployment insurance for particular workers. The conditions that make certain employees ineligible for unemployment insurance vary from state to state, however, you will need to consult with a good attorney or review state unemployment laws to ensure your company is in compliance with the law.

So, what exactly is unemployment insurance?

Unemployment insurance (UI) is a program supported by state and local governments to protect workers who lose their jobs through no fault of their own. In the event of involuntary job loss (i.e. layoffs, downsizing), unemployment insurance helps temporarily offset the workers’ lost income. These payments are not intended to equal the workers’ standard wages—they are typically around half of the workers’ take-home pay.

Additionally, these payments are provided only for a limited amount of time, often determined by the state. The average period is 26 weeks, and the worker is required to be actively job-seeking at the time.
Extensions may be given beyond the established period, but only under certain conditions, such as when the economy is down and the worker has been making — without success — a consistent, good faith effort to find employment.

Take a deep dive into the ins and outs of unemployment insurance by watching our webinar!

This webinar was recorded on September 22, 2016, and presented by Jametra Isaac, G&A Partners' UI specialist. Please be aware that per HRCI guidelines, only webinars recorded during the current calendar year are eligible for recertification credit for on-demand viewers.

What is an employer’s role in the UI program?

Though unemployment insurance is a governmental program established in the 1930s to support workers and families ravaged by the Great Depression, it is the employer’s job—and legal responsibility—to implement the program in his/her own business.

Unlike most government programs, unemployment insurance is fairly simple: the employer pays a tax, which is determined by the state, on the wages of all employees qualifying for unemployment insurance. That money goes into a fund controlled by the government, which then distributes it in the form of unemployment benefits to qualifying workers who have lost their jobs through no fault of their own. In other words, they didn't voluntarily quit and they were not fired for a reasonable, documented terminable offense.

How can employers keep unemployment insurance rates (and costs) down?

According to the laws in your state, if your employees qualify for unemployment insurance, then there is not much you can do legally to avoid paying these taxes. However, there is a lot you can do to minimize the cost of unemployment insurance and claims.

In the first three years of your business operations, you will qualify for the “new employer” tax rate. This is a minimum tax rate determined by your state: the rate is established as a “percentage multiplier” of your employees’ base wages. If the state determines, for instance, that companies under the new employer tax rate have a base multiplier of three percent, then the employer must pay three percent of each qualifying employee’s base pay into the government unemployment insurance fund.

This rate, though, is the bare minimum—and that’s what’s important. This rate can never go down but it can skyrocket if you, as the employer, aren’t careful. Layoffs, downsizing, and employee terminations where you don’t successfully prove that the employee was fired for legitimate policy reasons can all make the costs of your unemployment taxes soar.

Tips for minimizing your business' unemployment tax rate

So, here are a few tips to keep those unemployment taxes under control:

1. Avoid layoffs and downsizing if at all possible: This means planning staffing needs carefully and strategically. Never hire more permanent workers than your business can reasonably be expected to accommodate for the long haul. Reducing employee turnover is also key to minimizing UI costs.
2. Make company policies clear and follow them religiously: Ensure that you have a clear, well-defined description of every job role which the worker must sign off on when s/he is hired. Ensure that company policies are clear and detailed and that all employees have acknowledged in writing their full knowledge, understanding, and acceptance of these policies, especially those relating to terminable offenses.
3. Document policy violations: In keeping with point two, when policy violations occur—and they inevitably will—make sure you follow the written procedure to the letter, including documenting each step along the way: document the offense, when it occurred, who was involved, what specific actions were undertaken to resolve it, the employee’s acknowledgement and later actions.This is necessary because, if the worst case comes to pass and you have to fire your employee, you will have a clear paper trail and will be better able to prove that the termination was justified. Most workers win unemployment claim disputes because of the employer’s lack of documentation. So, if you keep clear and substantial records, chances are, your company will win the dispute and you will avoid the unemployment claims that will drive your insurance rates up.
4. Don't overcorrect to avoid UI costs: As we've already seen, some employees won’t qualify for unemployment insurance. Who these workers are varies from state to state, but in general these are part-time, seasonal, or contract workers—those who do not qualify for benefits (i.e. health insurance, retirement, etc.).If you want to minimize your unemployment insurance costs, you can fill your staff with these provisional workers. But you do so at your own risk because a less than stellar job offer often means attracting less than stellar talent. In the business world, the old adage “You get what you pay for” is often true—and never more so than when it comes time to invest in your company’s most important commodity: your workers.

Unemployment insurance may not be glamorous. It’s not going to be the best or most interesting part of your day as a business owner—but it may well be among the most important. After all, unemployment insurance ensures you are in good standing with the law and helps you to attract the talent you desire and your company deserves.

While G&A Partners can’t help you avoid the emotions that accompany a layoff, we can help you avoid the painful process and potential risks associated with unemployment claims. Our knowledgeable HR professionals have extensive experience managing and administering State Unemployment Insurance (SUI) claims, as well as COBRA insurance, and more.