Understand how employers are impacted by the unemployment insurance system, including taxes and unemployment claims from fired employees.
The first unemployment insurance programs in the United States were established in the 1930s, and they still play an essential role today in providing short-term aid to jobless workers while they seek new employment. While the current program significantly impacts employees, it also affects businesses.
Here are some common questions and answers surrounding how employers are affected by unemployment insurance.
Employers have a few responsibilities when it comes to unemployment insurance, and the biggest one is financial. Most businesses pay both Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes, which primarily fund all unemployment programs.
Business owners in every state must pay FUTA taxes. This amounts to 6% of the first $7,000 each employee earns per calendar year, for a maximum annual contribution of $420 per employee. In some cases, you may be eligible to receive some of those payments back later via a tax credit.
As for SUTA, the amount your business will owe depends on the number of employees, how much you’ve already paid into the unemployment system and how many of your former employees have claimed benefits.
Another rule that could affect you, especially if you have remote employees, is that companies must pay state unemployment taxes to every state in which their employees work. To find out the rules surrounding a given state’s unemployment taxes, contact that state’s government labor office.
Unemployment claims impact your business in a few ways. First, when a former employee files a claim for unemployment, your business will be required to validate or contest the claim. As the former employer, you will typically receive a notice from the state or federal unemployment agency when someone files for unemployment. The notice will ask you to validate or correct the details of the claim, such as:
If the worker’s claim is valid, you should accept it. But if the person’s claim is invalid (such as if you fired them with cause or they voluntarily left the company), you can contest it.
Second, unemployment claims can impact the amount you pay in unemployment insurance taxes. Since SUTA tax rates are determined in part by the number of your former employees who have claimed benefits, approved unemployment claims will likely raise your taxes. In more than half of U.S. states, this does not count workers furloughed as a result of COVID-19.
If an employee was fired for misconduct or a company policy violation, they are most likely ineligible to collect benefits.
You have some work to do if a former employee submits an inaccurate claim and you want to contest it. Namely, you will need to submit documentation to show why the claim is not accurate. In some cases, you may also need to attend a hearing where you are interviewed about the facts of the claim.
In most states, a business must contest an unemployment claim within ten days of receiving the notice, or face potential penalties or tax increases. Once the claim has been contested, the company and the former employee will each receive a “Notice of Determination” stating whether the claim has been accepted (or not) by the state. Even if the former employee’s claim is denied, they may be able to appeal the decision.
Business owners pay the vast majority of taxes that fund federal and state unemployment programs. However, three states—Arkansas, New Jersey and Pennsylvania—require employees to pay a small portion of state unemployment insurance taxes.
If you’ve ever wondered whether you should expect unemployment claims from fired employees—the answer is, it depends. Unemployment insurance is generally only available for workers who have been laid off through no fault of their own, such as due to lack of work or a facility closing.
If an employee was fired for misconduct or a company policy violation, they are most likely ineligible to collect benefits. Examples of causes for termination that would exclude an employee from collecting unemployment insurance include:
The Coronavirus Aid, Relief and Economic Security (CARES) Act and the American Rescue Plan expanded unemployment insurance for many workers impacted by the COVID-19 pandemic.
For the most part, employers’ responsibilities and tax obligations when it comes to unemployment insurance have remained the same. However, guidelines are in flux again as businesses restore their workforces to pre-pandemic levels. For example, Georgia now requires employers to “report re-hires, or employees who return to work after 60 days of being laid off, furloughed, separated, granted a leave without pay or terminated from employment.” And some states, like Vermont, have made special provisions for unemployment eligibility, such as if a person left their job due to being sick or isolated as a result of COVID-19.
Check with your state’s program to make sure you’re up to date.
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