A woman sitting in her home looks thoughtfully at her laptop. In one hand is a pen and in the other is a smartphone.
Unemployment insurance is certainly a concern of employees, but the laws surrounding the insurance also affect employers and the companies they run. — Getty Images/Brothers91

The first unemployment insurance programs in the United States were established in the 1930s, and they still play an essential role today in ensuring that workers who have been laid off can receive aid while looking for new jobs. While the current program significantly impacts workers, it also affects businesses.

Here are some common questions and answers surrounding how employers are affected by unemployment insurance.

Do employers have a responsibility when it comes to unemployment benefits?

Yes, employers play an important role when it comes to unemployment insurance. The biggest way is by paying taxes. Most businesses pay both Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes, which primarily fund all unemployment programs.

Regardless of what state they are located in, business owners need to pay FUTA taxes. This amounts to 6% of the first $7,000 each employee earns per calendar year, meaning the maximum businesses will pay per employee is $420. In some cases, companies are eligible to receive a tax credit later, allowing them to earn some of those payments back.

As for SUTA, how much each business is on the hook for depends on the number of employees, how much has been paid into the unemployment system and how many former employees have claimed benefits. Importantly, companies must pay state unemployment taxes specifically to where their employees live. So if a business has remote workers in multiple states, they must pay unemployment taxes to those corresponding states. To find out the rules surrounding a given state’s unemployment taxes, contact that state’s government labor office.

How else are employers impacted?

Outside of taxes, the other way employers are affected by the unemployment insurance system is that they need to validate or contest claims made by former employees.

For example, when someone files an unemployment claim, the former employer typically receives a notice. The business will then be expected to provide details, such as:

  • Whether the employee is working full time, part time or not at all.
  • Why the worker left, including whether they were laid off (lack of work), voluntarily quit, were fired or left because of a trade or strike dispute.
  • Whether they refused employment.
  • If the employee is legally able to work in the United States.
  • If the employee is receiving any form of compensation, such as a pension or severance pay.

If the worker’s claim is valid, businesses can accept the claim. But if they are making an invalid or misleading claim, companies can contest it.

In some cases, companies are eligible to receive a tax credit later.

What happens if an employer contests an unemployment claim?

Businesses have some work to do if a former employee submits an inaccurate claim and the business wants to contest it. Companies will need to submit documentation to show why the claim is not accurate. Unemployment claims in most states must be contested within ten days of the notice being received, or businesses could face penalties or tax increases. Once the claim has been contested, both the companies and the former employee will receive a “Notice of Determination” that will show if the claim has been accepted (or not) by the state. Even if the former employee loses, they may have the ability to appeal the decision.

Do employees pay an unemployment tax?

Business owners pay the vast majority of taxes that fund federal and state unemployment programs. However, in a few states, employees also contribute to state-level SUTA taxes. Employees in Arkansas, New Jersey and Pennsylvania are asked to contribute in some circumstances.

Can a fired employee collect unemployment?

Businesses may wonder if they should expect unemployment claims from fired employees. They should not, as unemployment insurance is generally only available for those employees who have been laid off through no fault of their own. If an employee was fired for misconduct or a company policy violation, they are very likely ineligible to collect benefits. Some examples of fireable causes that would exclude an employee from collecting unemployment insurance include:

  • Stealing.
  • Excessive unexcused absences.
  • Falsifying records.
  • Sexual harassment.
  • Abuse of other employees.
  • Criminal behavior.

Did COVID-19 change employer responsibility for unemployment insurance?

One final thing for employers to understand is if the COVID-19 pandemic and federal and state responses impacted their unemployment insurance responsibilities, such as taxes. The answer, generally speaking, is no. In most states, employers still have the same responsibilities and tax obligations. The only exception is Georgia, where employers must now file a report of which workers have been furloughed or had hours partially reduced.

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Published November 03, 2020