When
an employee is laid off or fired, they can apply for unemployment
insurance (UI) to help them get by while looking for another job.
Whether or not that person receives benefits is up to the state’s
labor office—and
in part, their former employer.
Read to learn how unemployment insurance claims work, who can claim and the employer’s role in determining whether former employees qualify for unemployment insurance.
How does unemployment insurance work?
The
U.S. unemployment insurance system has provided a safety net for
recently out-of-work people since the 1930s. With oversight from the
U.S. Department of Labor, the system is managed (and funded) at both
national and state levels.
Businesses
primarily fund unemployment insurance programs by paying Federal Unemployment Tax Act (FUTA) taxes and
State Unemployment Tax Act (SUTA) taxes. No matter what state you are
in, your business will pay a set amount in FUTA taxes (though these
taxes are typically offset). But state-level taxes can vary depending
on how much UI previous employees collected, where you are based, how
many employees you have and other factors.
The majority of states offer up to 26 weeks of unemployment benefits, with the benefit amount calculated based on the claimant’s average earnings during . States cut weekly checks or make direct deposits to eligible workers using the unemployment insurance tax money they collect from employers.
Who can claim unemployment?
Workers
who are laid off, are furloughed, quit with good cause or have lost
seasonal work can claim unemployment benefits in the form of weekly
cash payments—if
they meet certain conditions. In
some cases, employees whose hours have been cut may also be eligible
for UI.
To
be eligible for unemployment benefits, a person needs to meet the
state's requirements for wages earned or time worked during an
established base period. With COVID-19
being a major exception, unemployed individuals must also prove they
are actively looking for work in order to keep receiving payments.
Generally
speaking, workers can’t collect unemployment if they’ve been
fired with proper cause, such as misconduct or violation of company
policy. Rules surrounding eligibility vary widely between states,
especially during the COVID-19 pandemic. Check with your state’s labor office
for complete information.
[Read more: Can Fired Employees Collect Unemployment?]
Yes, an employer can contest an unemployment claim—but proceed with caution.
What is an unemployment claim?
An unemployment claim is essentially an official request for cash benefits by a worker after becoming unemployed. Individuals will submit unemployment claims to the labor office in the state where they live. They must provide information about the claim, including their contact information, Social Security number and details about the former employment.
Can
an employer contest
an unemployment claim?
Yes,
an employer can contest an unemployment claim—but
proceed with caution. If a former employee files for unemployment,
you’ll be notified via post. The notice will outline details such
as why the employee left (i.e. if they were laid off, quit or were
fired), whether they refused employment and if they are still
receiving severance pay or other compensation.
At
this point, you have a responsibility to either accept or contest the
claim. If the worker’s claim is valid, you’ll want to accept it.
On the flip side, if the notice contains inaccurate information or
the employee was fired with cause, you’ll likely want to contest
the claim.
Notably,
employees fired for minor infractions (such as tardiness or not
performing up to expected standards) have a right to receive benefits
in most states. Therefore, you may not have grounds to contest this
type of claim.
Also
important: Contesting
a claim does not automatically mean the former employee’s
unemployment benefits will be denied. When contesting a claim, you’ll
need to provide evidence and documentation to back up your case. For
example, to contest a claim because the employee was fired with
cause, you’ll need to provide documents to show proof of
misconduct, such as written warnings.
Once
a claim has been officially evaluated, both the company and the
claimant will receive a “Notice of Determination.” The notice
announces whether the state accepts or denies the claim. Keep in mind
some states allow workers to appeal a denied claim.
[Read more: Everything You Need to Know When An Employee Files for Unemployment]
Should employers contest unemployment benefit claims from former employees?
Just
because you can contest a claim doesn’t mean you necessarily
should.
Often,
the main reason an employer may want to contest a claim is to avoid a
hike in unemployment insurance tax rates. The amount of taxes owed is
based in part on the number of claims made against the company by
former employees. Thus, employers are motivated to scrutinize every
new claim.
On
the other hand, contesting unemployment benefits claims is not
without cost. The process requires time and energy from the HR team
or business owner, although a business can hire a Third Party
Administrator (TPA) to handle claims on its behalf. In addition, the
process may become more complex
if a
former employee files
a wrongful termination suit against your company or fights
for the claim through a drawn-out appeals process.
Lastly, excessive or ongoing denying of claims may send a negative message to employees. Examine each case carefully to determine whether denying an unemployment claim is worth your company’s time.
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