Here are some quick facts about unemployment insurance: 

• Unemployment insurance is not a government-funded entitlement program.

• Unemployment insurance is funded by a combination of federal and state taxes on the company's payroll. The company itself pays the tax.

• There are 8.0 million unemployed persons nationwide equaling a 5.4% unemployment rate.

• Unemployment compensation benefits can be paid for a maximum of 26 weeks in most states.

And here's another fact. Unemployment affects your company's bottom line. In today's business world, everyone needs to be educated on the specifics of unemployment claims.

A Brief History
In 1935, the Social Security Act created the Federal-State Unemployment Compensation (UC) Program. This program was created to provide short-term monetary wage benefits for involuntarily unemployed workers who were recently employed, as well as help stabilize the economy during periods of economic downturn. The Federal Unemployment Tax Act (FUTA) of 1939 supports the program and each state administers a separate unemployment insurance program. Companies fund the unemployment claims through FUTA and SUTA (State Unemployment Tax Act) taxes.

The "Bottom Line"
Each state has varying regulations that affect how unemployment benefits are administered, and sets its own tax rate. A fixed tax, which is applied to the company's payroll, generates contributions to the federal system. A variable tax, which is determined by the number of unemployment benefit claims that a state pays to former employees, is combined with the fixed tax and then applied against the company's payroll. An Unemployment Trust Fund set up in each state is made up from the collection of both the state and federal taxes collected and deposited. 

Why is this important? A company's unemployment tax is based on three things: (1) the amount of taxable wages it has paid; (2) the amount a company has contributed to the fund; and (3) the amount that a company's former employees are collecting from the fund. In summary, the more unemployment compensation paid out to a company's former employees, the more the company may be taxed.

Unemployment Insurance Eligibility Requirements
There are several requirements an unemployed individual must meet before he or she is able to make a claim for benefits:                       

• Wage and Time Requirements (Minnesota)
  Recent employees must meet the state requirements for wages earned or time worked. This is the first four of the last five calendar quarters prior to the former employee filing for unemployment benefits, also referred to as the "base period." If a company is responsible for the majority of wages paid during the base period, it may still be liable for the unemployment claim even if the employee had subsequent employment.
   

• Unemployment Eligibility  Requirements (Most States)
  Generally, it must be determined that a former employee lost their job through no fault of their own. However, if an employee voluntarily leaves without good cause or is let go due to a labor dispute or misconduct, there is a very good chance he or she will be disqualified from receiving unemployment benefits.
   

• Work Availability Requirements (Minnesota)
  A former employee must be able and available to work. Additionally, the employee must demonstrate a willingness to seek and accept suitable employment. However, the employee may refuse new employment under the following conditions: 

• The position offered is not suitable in terms of similarity to the employee's former position regarding the type of work, pay, hours or location.

• The position offered as vacant directly due to a strike, lockout, or other labor dispute.

• The wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality.

• A condition of being employed means the individual would be required to join a union or to resign or refrain from joining any bona fide labor organization. 

In order for former employees to continue collecting unemployment benefits, they must continually meet the eligibility requirements listed above. They are required to file weekly or biweekly claims and answer questions concerning eligibility. A report of earnings is also required as well as any refusal of job offers. Failure to do so may result in denial of benefits. 

Challenging an Unemployment Claim: The Good and the Bad
An employer's choice to challenge a former employee's unemployment claim is an extremely important decision and should always begin with careful assessment of the risks and benefits.  

When a claim notice arrives, it is imperative that the employer responds in a timely manner, since states have strict time limits concerning unemployment notices. When an unemployment claim notice is made, thoroughly review the notice immediately to determine if it is valid. Notices that are received should be challenged when it can be determined that: 

• There is effective documentation that supports that a former employee was dismissed for willful misconduct.
• The former employee voluntarily quit, e.g., the employee obtained another job, quit because he no longer liked his job, decided to go to college, etc.

 Nothing is absolute with Unemployment and challenges to claims may vary from state to state.  But whether an unemployment claim is granted or denied, the losing party has the option to appeal. Documentation supporting the disqualification of the claim would be presented at a hearing and decisions made during the appeal can also be challenged. It is important for employers to become familiar with their state's unemployment regulations, as each state's processes vary.  

Unemployment costs companies nationwide millions each year. Employers must make it a priority to understand unemployment and the financial impact it can have on their company. Remember, the higher the number of unemployment claims paid, the higher the tax will be against the employer's payroll. With unemployment currently at 8.0 million and expected to rise in the coming months, it is essential for a company to do what it can to maintain a low unemployment claim rate, keeping costs down and improving the bottom line. 

For more information on individual state unemployment processes and statistics, visit the U.S. Department of Labor website at: www.doleta.gov

If you do not wish to continue to receive our monthly newsletter
please click on this unsubscribe link to be removed from our distribution list.

To subscribe to our newsletter, please click on this subscribe link.

Past articles are available to read here.