A man sits on a couch and considers his laptop with one hand on his chin in thought. The laptop sits on a coffee table in front of the man, along with glasses, a coffee mug, and a small potted succulent. In the background are a decorative bookshelf and a tall potted plant.
Filing for unemployment is a two-party job -- both the former employee and the employer have roles to fill. — Getty Images/tommaso79

When an employee is laid off or fired, they may have the ability to apply for unemployment insurance to help them get by while looking for another job. However, the worker’s former employer also has a role to play in the process as they try to file a successful unemployment claim.

Here are some critical questions and answers regarding how unemployment works, how employers are impacted by unemployment insurance and their role in approving or denying benefits.

How does unemployment insurance work?

The U.S. unemployment insurance system has provided a safety net for recently out-of-work people dating back to the 1930s. The system is funded at the national and state levels by businesses 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 set FUTA taxes. But state-level taxes can vary depending on where you are based, how many employees you have and other factors.

Workers who are laid off, have lost seasonal work or have been furloughed can apply for unemployment insurance. In the majority of states, laid-off workers are typically able to receive 26 weeks of unemployment benefits as well as a percentage of their average annual pay. Generally speaking, workers who have been fired with cause can’t apply for unemployment insurance.

What is an unemployment claim?

When a worker is laid off or furloughed, they can submit an unemployment claim with the state where they live. The claim is effectively a notification to the state government, the federal government and the former employer that the worker is seeking unemployment insurance. The U.S. Department of Labor tracks weekly unemployment claims, and this data helps inform the media and country about the health of the economy.

Generally speaking, workers who have been fired with cause can't apply for unemployment insurance.

Can an employer deny an unemployment claim?

When an employee files an unemployment claim, the former employer will receive a notification. This notice will outline details such as why the employee left (if they were laid off, quit or were fired), whether they refused employment and if they are still receiving any form of compensation such as severance pay.

At this point, the employer has the 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 former employee is not providing accurate information or was fired with cause, you’ll likely want to contest the claim. Notably, you should not contest claims if the employee was fired for minor infractions such as tardiness, sloppy work or an inability to pick up new skills.

However, when an employer contests the claim, this does not mean unemployment benefits are automatically denied. If the claim is being contested because the employee was fired with cause, the employer will need to provide documents to show how the worker violated policies.

Once a claim has been officially contested, both the company and the claimant will receive a “Notice of Determination” that shows if the state accepted or denied the claim. Even if the employee loses the determination, some states may allow them to appeal the decision.

What are the upsides and downsides to contesting a claim?

The most compelling reason to contest a claim is that an employer’s unemployment insurance tax rates could go up. The amount of taxes owed is based in part on the number of claims made against the company by former employees, so if there is a concern regarding this, it can certainly be worth fighting the claim.

On the other hand, trying to deny a claim may be a costly endeavor. A former employee could file a wrongful termination suit against your company or fight for the claim through a drawn-out appeals process. So in certain cases, it may simply not be worth your company’s time.

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Published November 09, 2020