Taxes can impact a company’s profitability, ability to expand or even survive. Although many taxes are unavoidable, unemployment insurance tax is an exception. In a continuation of a series of interviews, Susan Mravca, CEO and co-founder of JuvodHR, provides advice to help businesses lower their unemployment insurance.
Are unemployment tax rates the same across the country?
No, they are state specific. Every state applies their own rate to new employers for the first three years. During the first three years, rates can go higher than the new employer rate, but never lower.
What influences the rate a company is charged?
Rates are re-determined once a year at the end of the year. The formula is complicated and includes the number of employees laid off during each year of operations, their wages and length of employment. The new rate is then applied to the wages of each employee, so a greater number of employees means higher taxes. The more unemployment claims filed and won by employees in each year of business, the higher unemployment taxes will be.
What causes claims to be denied?
Every state has distinct language for successfully denying different types of claims, one of the top reasons employees are discharged is for misconduct. Yet each state has different rules for winning or losing a misconduct claim. Here are a few examples:
- Delaware: “If an employee is guilty of a willful or wanton disregard of the last employer’s interest, deliberate violation of the employer’s rules, disregard of the standards of behavior which an employer has the right to expect, or gross negligence in the performance of duties, and is discharged, this termination … [will] result in a disqualification for benefits.”
- Texas: “’Misconduct’ means mismanagement of a position of employment by action or inaction, neglect that jeopardizes the life or property of another, intentional wrongdoing or malfeasance, intentional violation of a law, or violation of a policy or rule adopted to ensure the orderly work and the safety of employees.”
- Illinois: “Misconduct” is narrowly defined. An employee has to “harm” the business or other workers in order to be disqualified. No other state uses the term “harm” in such a narrow way. The Small Business Advocacy Council of Illinois is proposing to redefine “misconduct” to be broader, along with other reformations. New Jersey and Arizona have recently redefined “misconduct” in general overhauls of their own unemployment insurance programs.
How can businesses lower their rate?
Maintaining thorough and consistent documentation can lower unemployment tax rates. Unemployment taxes can be kept low if you maintain specific documentation of each employee’s performance, corrective action notices and documents associated with separations. Every professional interaction should be on paper and organized.
What specific actions should be taken?
1. Take the time to create a job description and review it with the employee, make sure you have them sign a copy.
Requiring employees to sign their job description shows that both you and the employee understand the behaviors that are expected. If each employee receives and endorses a description of expectations upon accepting the job, you have created a good foundation for winning disputes.
2. Keep records of employee reviews, warnings and corrective action notices.
You should document performance reviews, warnings and corrective action notices for all employees. Employees should view and initial these documents in order to prove that they were aware not only of their duties, but also of specific performance deficiencies. Warnings and citations should advise the employee that repeated bad behavior might result in discharge.
Documentation requirements differ by state. You should become familiar with the information that must be reported in order to have a claim denied. Keep a copy of your state’s policy so you can refresh your memory, especially if this is your first or second time dealing with this situation. For example:
- Alaska requires documentation of “gross or repeated negligence.”
- Arizona cites “repeatedly late for work after being warned and without a good reason.”
- Florida specifies “carelessness or negligence to a degree or recurrence that manifests culpability or wrongful intent, or shows an intentional and substantial disregard of the employer’s interests or of the employee’s duties and obligations to his or her employer.”
Can an employee claim benefits if they quit?
You must be extremely careful when employees resign or are involuntarily separated. Only employees who are laid-off automatically qualify to receive unemployment benefits in any state.
- To prove an employee was fired for cause, you will need previous warnings, corrective action notices and performance reviews. You have to be able to pinpoint and prove the specific incident leading to the dismissal.
- To prove job abandonment, you must document attempts to contact the employee. You must also issue a final notice and prove that the employee’s repeated absences led to their separation.
- To prove your employee gave notice, you must have a signed, written notice from the employee.
When consistent documentation is maintained, you can win when fighting fraudulent unemployment claims. You may also avoid the indirect costs of attorney or consultant fees, as well as time and energy spent in correspondence or in court.
Susan Mravca is an advocate with the Small Business Advocacy Council for unemployment insurance reform. A serial entrepreneur, Susan is CEO and co-founder of JuvodHR, an expert system in Human Resources designed for small businesses yet equal to that of large corporations. Users can search for pre-written job descriptions and immediately edit them to their own business needs. JuvodHR then automatically creates a valid performance review, built 100% on the job description, providing a simple, clean way to rate employees. For more information go to JuvodHR.com.