Unemployment insurance is an unavoidable part of doing business. Employers pay into federal and state insurance programs via payroll taxes that are used to fund unemployment benefits. In some states, employees are required to contribute to unemployment insurance as well. This is information you already know if you have been an employer for any length of time.
Where unemployment becomes a confusing proposition is when claims are actually filed. In a perfect world, unemployment benefits would be paid only to those people who lost their jobs through no fault of their own. But reality is a whole different ballgame. There are times when former employees should not be collecting benefits, but employers do not want to invest the time and resources in contesting their claims.
What Happens When a Claim Is Filed
A former employee hoping to collect unemployment benefits files with his or her state unemployment office. That office then sends a notice of claim to the person's last known employer. Let's say that employer is you. What happens next? You will receive a notice of the claim along with a thorough explanation of why the claim was made. You can either accept the claim or contest it.
Accepting a claim is essentially agreeing that, to the best of your knowledge, the former employee is eligible to receive benefits. The state ultimately decides that person's fate, though. Contesting a claim means you do not agree with the former employee's assessment that benefits are due. Contesting may require you to prove your position in order to prevent your unemployment taxes from going up.
When to Accept a Claim
There are very valid reasons for accepting an unemployment claim even though that means your payroll taxes will go up. Consider the following possibilities:
• Insufficient Work – Employees laid off because there is insufficient work to keep them busy are usually granted unemployment benefits without question.
• Financial Difficulties – Likewise, employees laid off as a result of their employer's financial problems have not caused their own dismissal. They are usually eligible for unemployment benefits
• Employer Mistakes – Lastly, sometimes employees are dismissed due to mistakes or wrongdoing by their employers. As long as the state agrees that the employer is at fault, the former employee will be awarded benefits.
When to Contest a Claim
There are also very valid reasons to contest an unemployment claim that you believe is invalid. Here are a few possibilities:
• Voluntary Termination – A worker who voluntarily terminates his or her employment without cause is generally denied unemployment benefits. This would include workers who leave to take another job that eventually falls through.
• Employee Misconduct – Former employees are not entitled to unemployment benefits if their termination was the result of misconduct or insubordination.
• Contractor Classification – Independent contractors are not eligible for unemployment benefits. It is appropriate to contest a claim by a former worker who was classified as an independent contractor for payroll purposes.
• False Information – Finally, it is appropriate to contest a claim when false information has been submitted by the former employee.
It is the responsibility of employers to carefully consider each unemployment claim on its own merits. It is equally important to understand that contesting a claim may require substantial effort on the employer's part. Accepting a claim generally means the employer has nothing further to do.
The information contained in this post is intended to serve only as an introduction to accepting and contesting unemployment insurance claims. If you have any questions about how such claims relate to payroll, please do not hesitate to contact us.