Law

The Statute of Limitations on Filing Unemployment

August 15, 2018

The employer responsibility for unemployment benefits depends on circumstance. Understand when you're responsible, and how claims can affect your rate.

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What is the employer responsibility for Unemployment benefits?

The U.S. economy seems to be booming, and it seems like a lifetime has passed since the financial industry brought it to its knees. However, it was a short decade ago that many industries were barely scraping by.  Some companies are still feeling the effects, even a decade later.

8.16 image 2While those companies may be recovering little by little, they are doing so with a hesitant outlook about the future. During the economic downturn, it was not uncommon for companies to perform layoffs—and sometimes mass-layoffs, at that.  They did this knowing the ramifications included an often steep cost to the company: an increase in unemployment premiums.

While many business owners recognize the price they pay, not all of them completely comprehend what happens from beginning to end when they term employees. It’s also difficult at times for businesses to determine when the employer responsibility for Unemployment benefits applies and the reasoning.

What is unemployment?

It’s no secret that companies pay a bazillion different types of taxes. It’s like ole Benny Franklin (yeah, we’re on a half-name basis) sighed, “…in this world nothing can be said to be certain except death and taxes.” Employees are accustomed to seeing the Federal Income Tax (FIT) withholding on their checks, as well as Social Security and Medicare (Federal Insurance Contributions Act, or FICA).

Sue Shirley
Sue Shirley, President of Tax Operations, Shareholder of Journey Colorado

However, one thing that employees don’t see, but that is always on an employer’s mind, is the unemployment tax (the Federal Unemployment Tax is FUTA, and the State Unemployment Tax is SUTA). Individual states are responsible for setting their SUTA tax rate (somewhere between 1-8% of a range of earnings). The FUTA is a calculation of 6% of the first $7,000 an employee earns. However, with good behavior (i.e. paying in a timely manner), the government will allow a tax credit of up to 5.4%.

Sue Shirley, President of Tax Operations and Shareholder of Journey’s Colorado office, explains the other factors for calculations.   Sue says, “The rate is truly driven off of the industry your company is in, and each state’s rates for these industries varies.  Just because a specific industry is at a set rate in one state, doesn’t mean it will be the same in another state.  It also depends on the economic health of the state your company is in as well.  If you have any questions or need further explanation about your unemployment rate, feel free to reach out to me here at the Colorado office.”

What factors contribute to a company’s experience rating?

The number of instances where former employees file unemployment against a company is called the experience rating.  The experience rating is part of the equation that determines an employer’s tax rate.

Other factors in the equation include the number of employees a company has, the type of work performed, type of worker making the claim, date of claim, duration of employment, reason for work separation, and amount of benefits (dollars) paid to the worker who made the claim.

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What happens if a company has many unemployment claims?

8.16 image 5If a company has many unemployment claims, the experience rating goes down, and the tax rate goes up. Besides frequent unemployment claims, another factor that can affect the tax rate is the amount of benefits paid to former employees.

So, if an employee files for unemployment, and then maxes out the term for drawing unemployment, the unemployment rate will also be adversely affected, because the so-called pool of funds has been depleted.

What exactly happens to a former employee when he files for unemployment?

Clarifying the definition of “former” is key to knowing what happens when a former employee files for unemployment.

John 1.0

Think about it like this: An employee named John had worked at XYZ Company for 10 years. Due to technological advances that the company could not keep up with, they lost several key accounts and had to lay off a few of their highly paid staff. John, confident that his skill set would qualify him to land another job quickly, bypassed the unemployment line.  He decided instead to rely on his savings to hold him over while he researched other jobs and interviewed.

8.16 image 4As time passed, John realized he himself was lagging behind where technology is concerned.  This costed him opportunities he would otherwise have in the bag. John had a lot of pride, but he also didn’t want to go into debt due to his prideful spirit.  He decides to go down to his local unemployment office to file a claim.

Now, this is the point where the story can go one of two ways.

In the first version of the story, John filed an unemployment claim and the company confirmed employment. John received unemployment wages for three months, until he found another job.

While the company’s experience rating is affected by John’s claim due to him filing the claim, the fact that he only drew unemployment for three months, and didn’t max out the term, kept him from having too detrimental an impact on the experience rating.

John 2.0

Now, let’s consider the second version of the story.

Former employee John went through the exact same steps post-termination. However, after two months when he went to file a claim, John’s claim was denied.

John only knew of two reasons for denial of benefits—if they fired him or if he quit. Neither was true in John’s case, so imagine his shock to find out the reason was accepting a small severance package on his way out. This delayed his unemployment eligibility, since he was technically still receiving payment from his former employer.

In this situation, John didn’t become a “former” employee until the number of weeks he received the severance pay ran out. After learning this information, John decided to do additional research. He uncovered that aside from these three things, other reasons an employee could be denied benefits include an inability to physically perform the job, and accepting freelance work after a layoff.

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What is the employer responsibility for Unemployment benefits?

There is a lot of grey area surrounding unemployment and when an employee will be eligible for receiving benefits. In fact, even in a situation where the termination resulted from the fact they weren’t great at the job (in other words, fired), an employer could still pay benefits.

However, if an employee termination is for frequently arriving late for work, and occasionally no-showing, then there’s good chance this qualifies for misconduct. In an instance of misconduct, the employer responsibility for Unemployment benefits is nullified.

So even deciphering among the reasons for an employee termination takes some thought.

What if an employee appeals a denied claim?

8.16 image 3Some employers deny an unemployment claim, just to find the employee has returned by means of appeal. In this situation, it’s important for the employer to collect the most comprehensive information possible surrounding the termination.

Employees only have a limited amount of time (approximately 10-30 days) to request an appeal, so if an employee appeals a decision, that employee likely means business and has done his/her own research and is armed with the items he/she believes will overturn the decision. Make sure that all records are accurate, and that testimonies are honest.  Accurate records can determine if the employer responsibility for unemployment benefits stands, or if there’s reason for dismissal.

How can I minimize the number of unemployment claims at my company?

Unemployment claims are a natural part of business, but business owners can continually seek ways to minimize claims. Keeping workplace atmosphere in the forefront of their minds is one small way employers can do this.

Happy employees are likely to stick around longer. Employees that choose to leave a place that treated them well could be less likely to file a claim. As with anything else, an ounce of prevention is worth a pound of cure.


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