Managing the Risks of Unemployment Claims

Managing the Risks of Unemployment Claims

This article was updated on Sept. 27, 2018.

Effectively managing the risks of unemployment claims is an important part of an overall employment-related compliance strategy. While federal unemployment insurance (UI) tax rates are fixed, state UI tax rates are not; instead, they're directly related to the number of your former employees who successfully claim and collect unemployment benefits. By following best practices in preventing and, when necessary, contesting unemployment claims, you can help reduce your state tax liability and positively impact your bottom line.

Costly UI Mistakes Do Happen

According to reports from the U.S. Department of Labor, some $7.3 billion in erroneous unemployment benefits were paid out in 2013, of which only about $1.5 billion was recovered. The unnecessary cost-burden placed on companies is immense. When an employee files an unemployment claim, the burden of proof may often shift to the employer to come forward with evidence showing that the claim should be denied. Employers who are not prepared to sustain that burden, due to insufficient recordkeeping or the unavailability of people to attend a hearing, will often assume a larger cost burden.

Risk Management Techniques

1. Know your state's unemployment system

Some states require employees to have worked with you for a certain duration of time, or to have received a certain amount of compensation, in order to trigger UI eligibility. Learn the rules about employee eligibility for benefits and know which of your existing employees is eligible to file a claim. You'll need good employee-related data systems.

2. Document everything

Employers often need to present evidence contesting a UI claim, and the only way to carry that burden is with solid documentation. You should have systems in place to document disciplinary actions, and have the ability to store and retrieve relevant employee-related data easily. If you don't have an adequate system in place, consider bringing in expert help from outside.

3. Discharge employees only when necessary

If you need to lay off an employee due to lack of work, you'll usually need to pay unemployment benefits. However, if the employee leaves voluntarily, no unemployment benefits should be paid. The hard part comes when you discharge an employee for misconduct, in which case no unemployment benefits should be paid. If, for example, the discharge is for "persistent absenteeism," make sure the expectations in your Code of Conduct have been properly communicated to the employee. You'll also need a system for tracking absences and have given the discharged employee appropriate verbal and written warnings.

Contesting Unemployment Claims

Contesting unemployment claims must be done in a timely manner following the state agency's rules. When an ex-employee files for unemployment, a state agency will send you a notice of the claim. You'll usually have seven to 10 days to contest the claim in writing, so it's important that you move quickly in collecting the documentation you need. If you fail to answer the claim in time, you'll lose by default because you haven't carried your burden of proof. A system to manage claims is essential for all businesses.

Vague assertions will not suffice to defeat a claim, so be specific in your responses and provide detailed evidence. Be prepared for the hearing by knowing and understanding the pertinent issues and anticipating the employee's position. Bring witnesses and documentation to support your side of the case. If you don't show up, your chances of losing are strong.

The risks of unemployment claims can damage your bottom line, so managing the risks effectively is critical. By following the suggestions above, you can better contain those risks and avoid the high costs involved with needlessly losing claims.