FileUnemployment

The Real Cost of Unemployment Claims to Companies

Employers are financially responsible for the unemployment benefits paid to the unemployed.  That is, each state taxes its employers for the unemployment benefits it gives out.  Not for profit entities often pay on a per claim basis:  they pay a tax which equals what claimants receives at the time they receive it. For profit, businesses pay through a payroll tax. Significantly, this tax varies from year to year, depending mostly on the experience an employer has with former employees collecting unemployment benefits.

Many employers figure that unemployment taxes are just a cost of doing business. They don’t realize that many of their former employees are likely ineligible for unemployment benefits. They don’t realize that they can fight many claims and keep their unemployment taxes low by denying unemployment benefits to people who should be judged ineligible for them.  Meanwhile, the cost of these claims causes the employers tax rates to rise.

The Costs of Unemployment Claims: Increased Tax Rates

Awarded unemployment claims cause a company’s unemployment tax rate to rise in future years.

Your company’s unemployment tax rate, therefore, is experience rated:  it goes up or down over time depending on your company’s history with awarded unemployment claims.

In Illinois, for example, rates vary between 1.0% and 8.2%.  The first $12,000 of each employee’s wages will be taxed in 2008. So, a million dollar taxable payroll can have unemployment taxes between $10,000 and $82,000. Obviously, lower tax rates make a difference to your bottom line.

Many companies have very high rates, and even companies with lower rates could pay less unemployment taxes if fewer employees collected benefits that were chargeable to the company.

The actual cost of a claim may vary, since claimants may collect just 2 weeks or 26.  The average claim costs an employer $4200 but claims can cost a company in excess of $10,000.

Each claim can affect 3 years of unemployment tax rates since state formulas used to assign rates ordinarily use a 3 year moving period to assign a tax rate. This is one reason why employers don’t realize the expense involved in a single claim. The expense is spread over a three or four year period.

Smaller employers are hit harder by single claims than larger ones, though the different impact of a claim on a tax rate does not change the actual cost to the employer significantly. The average cost, big firm or small, of an unemployment claim is 4200.

Employers can contest the cost of these claims by fighting unwarranted applications for benefits.  Employees terminated for misconduct or employees who quit for reasons not attributable to the employer are legally not entitled to unemployment benefits.

Is it Fair for a Business to Deny Unemployment Claims?

The unemployment system basically exists to award benefits to the unemployed but it only wants to give money to people who are unemployed through no fault of their own. If someone is at fault for being unemployed, they should be denied. People are at fault if they have committed misconduct at work or have quit by their own choice.

When people collect benefits after they have been fired for misconduct or quit for personal reasons not attributable to the company, they cost their employer lots of money. It is a fair guess to say that each awarded unemployment claim costs the former employer more than $5,000. That is, the charges for their claims raise an employer’s unemployment taxes unnecessarily.

How much are the Employer Taxes?

Taxable employers pay a certain percentage on the taxable earnings of their employees. Most states tax the first ten or fifteen thousand dollars of earnings. Tax rates often vary between one percent and ten percent. Tax rates are established by a formula that calculates total unemployment charges and compares that to the size of a company’s taxable payroll over a three year period to give a tax rate.

How can a Company Get a Lower Rate?

If a company has a million dollar taxable payroll, a one percent difference in unemployment taxes means a savings of ten thousand dollars. It is in a company’s financial interest to get the lowest rate possible.

In simple English, if a company has fewer unemployment charges, the lower the tax rate. The employer can even get lower charges by fighting unwarranted claims.

If employers do not fight unemployment claims, they are meekly acquiescing to their costs. This permits claimants who behaved badly at work to collect a reward for their bad behavior and it insures that the employer pays an unreasonable tax expense.

If a company fights claims where former employees were fired for misconduct or quit, the company likely will get a lower rate. Often, a company is more successful if it uses a third party claims administrator to do this work. Third party administrators often charge very low fees.

 

This is a guest post written by David Prosnitz of “Personnel Planners”. His company provides unemployment cost control services to employers. When the claim comes, they write protest letters, make appeals to unemployment hearings, represent at these unemployment hearings, appeal those decisions when they seem reversible and audit the quarterly unemployment charges a company may get for awarded unemployment claims. You can get more information on their website: www.unemploymentclaims.com where there is free information and training on how to make a defensible employee termination.

  1. Are you able to receive unemployment in the state of Ga if you receive lump sum severance (which was the same pay as a 2 week regular paycheck)

    1. Sid,

      The E.U.C(Emergency Unemployment Compensation) remains expired. There is no extension available. Please inquire further with the labor authorities in your state by calling them.

    1. Jose,

      We’re not a scam or a fraud website:) fileunemployment.org has been around for more than 10 years and we’re one of the leading forums for unemployment insurance and unemployment in general. Our daily visitor and patron base is of considerable size and we truly believe in being a center for jobless workers to access resources and share their queries.

      1. I’m confused the article is about extending unemployment benefits in Texas but there hasn’t been any approved Emergency extensions since 2013. Can you clarify this.

        1. Glo,

          The E.U.C(Emergency Unemployment Compensation) remains expired. There is no extension available. Please inquire further with the labor authorities in your state by calling them.

  2. I’m attemptiing to file my first weekly claim since my layoff, however, my PIN# is not correct. what do I do to get my correct PIN# , please?

  3. I have exhausted my unemployment benefits in Texas but my calendar year does not end until September. Do I have to wait until the calendar year is over in Texas, to apply for unemployment benefits in New York in which I have available quarters?

    1. Mattie,

      As much as I am aware, UI benefits are only a one-time cycle. Please call the Claims Center for clarification.

  4. Help ran out of unemployment benefits for the pass 8 years i have worked at Hexion speciality chemical plant in Brady Texas how can i get my benefits extended

    1. Roderick,

      The E.U.C(Emergency Unemployment Compensation) remains expired. There is no extension available. Please inquire further with the labor authorities in your state by calling them.

    1. Annette,

      You can visit the official website of the Unemployment Office and ‘login’ to check the claim status. Alternatively, you can also call the Claims Center.

      PS: It should not take 6 weeks to process the initial claim. Please chase at regular intervals.

    1. Jocelyn,

      Unemployment is offered to claimants who’re able and available for work. Please call the Unemployment Office to ascertain if you can apply.

  5. I have been working for the same company for the past 11 years. I started out cleaning apartments, then landscaping and finally Asst. Manager for the past seven years. However, the owner/ manager had us all sign papers claiming we were “Independent Contractors.” I worked Monday thru Friday from 8am – 5pm the entire 11 years. Obviously, in reality, we had Never been “Independent Contractors.”
    Finally, October 2018 we became employee’s. On May 10, 2019 he sold the business which puts us all out of work. I tried filing for unemployment, but, I don’t have enough quarters in. Assuming I’m still out of work, can I wait for the next quarter to end, thus giving me the 2 quarters I need or will it not make a difference.

    1. Lea,

      Why don’t you look at alternate based period? Please use the link below to access the Base Period calculator.

  6. I have been working as an hourly employee for the last 4 months. Currently the board of the nonprofit agency came to me and told me that I had to file a 1099 or go to part time or find a new job. I have a scheduled time that I report to work. What are the laws here in Florida about who can receive a 1099

  7. I am unemployed and currently going to a community college. How can I apply for federal assistance?

    1. Carol,

      If you’re able and available for full-time employment, you can directly go to the website of the Unemployment Office and apply.

  8. I have worked in AZ since March 2016. However, I moved lived and worked for my employer in CA since 08/02/1982. Can I apply for Cali unemployment benefits?

    1. Robert,

      You should be applying from the state where your employment was based. Employers generally remit unemployment taxes to the state where the employee is based.

      1. How long does it take Washington state unemployment to deposit your back pay after they receive the determination letter from OAH stating I won my appeal?

  9. I have been trying for over a month to file and I still do not seem to be able to do it, but I finally got to the correct place, I think.

  10. Cumberland NJ Unemployment Center kept me on hold for 2 hours; I finally had someone answer my call, after providing my information and question regarding the status of my NJ Unemployment Claim the representative disconnected my call.

  11. Excellent list of things to help execute better. Even taking 3 or 4 of these that one does not currently utilize could help immensely.

    1. How did you calculate the total weekly Illinois benefit of $1495? Also, why isn’t Washington and Minnesota listed in your top 5 states with the highest paid unemployment insurance compensation?

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