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How Do Unemployment Insurance Claims Affect Employers?

Unemployment insurance is great for employees when their job is suddenly lost, but an employer must be knowledgeable about their role as well. Employers and employees have different roles and responsibilities in the unemployment system. Here are the answers to some questions employers may have about unemployment insurance.

How much will I pay for unemployment?

You will not directly pay money towards any former employees who are claiming unemployment benefits after working at your establishment. Instead, the money is being factored into your taxes. The specific tax percentage can be lowered if you have lower numbers of workers claiming for unemployment after working at your establishment, and potentially even drop to no tax payment at all.

What happens when a previous employee applies for unemployment?

When an employee files for unemployment benefits, your state’s unemployment office will begin the process of determining the events surrounding their loss of employment as well as their eligibility for unemployment. If the worker is determined to be ineligible, then nothing will happen to you as the business owner. However, if the worker is eligible for benefits and begins receiving unemployment aid, your tax rate for unemployment will rise. Unemployment benefits are funded by the taxes placed on business owners, so your tax rate will be raised in order to help pay for the worker who is now receiving unemployment.

Will my tax rate always increase when an unemployment claim is made?

No, in some cases your tax rate will not be affected by unemployment claims. For example, if a worker was categorized as a self-employed contractor, they will not be eligible for unemployment benefits and your tax rate will remain the same. However, if the worker challenges this ruling and is determined to have actually been your employee, you will be required to pay an increased tax rate. However, if their period of employment that is being measured by the unemployment office was under another employer as well, the amount may be split between you and the other employer.

How do I decrease my unemployment taxes?

The easiest way to avoid paying unemployment taxes is simply to retain employees. The fewer employees who lose their paid positions from your business, the better your tax rate will become. Essentially, you only need to ensure that workers who lose their job at your establishment are doing so for valid reasons. If a worker is fired because of misconduct, they are not eligible for unemployment. Having no workers eligible for unemployment is what lowers your tax rate over time.

What can I do to defend against wrongful claims?

When previous employees file for unemployment, your business will be sent a notification. The burden is now with your company. If you feel that the fault of termination laid on the employee, you can contest the unemployment claim. You will simply need to explain the reason for the termination of the employee and provide documentation as proof of your claim. If you are able to provide sufficient evidence that the reason of termination was in some way the fault of the employee, you will be successful and your tax rate will not rise.

Last Updated: April 06, 2016