The Truth Behind State Unemployment Rates
I recently spoke to a company who was unaware that their State Unemployment rates were drastically higher than average. Not only was their State Unemployment rate significantly higher than average (about a point); but they were also being assessed an annual fine of nearly 2% on top of their State Unemployment Tax. It made me wonder how many General Managers or Business Owners actually know what their State Unemployment rates are and what events affect the rate.
State Unemployment rates are given to a company who will employ W2 workers. These rates vary based on three factors:
1. Staff turnover
2. Number of State-approved unemployment claims
3. Money in Reserve Account (Every year, an employee will pay State Unemployment Taxes (SUTA), up to $11,300.00 per person. The taxes go into a “reserve” account per employer in order to cover the costs of unemployment).
The organization who I was working with recently re-branded themselves; and in the process they lost several staff members. Because these prior employees also were eligible to receive unemployment, the company had what seemed to the State as “excessive” claims being approved against their company. Also, as short-term employees, they had not contributed much towards the “reserve account”. The State was “paying out” to the claims, but did not have enough funding available for this company to cover the claims.
So, you ask yourself, how can we minimize this risk? There are a few ways to avoid this situation. The first step is to respond to every unemployment claim that crosses your desk. When you take the 2 minutes to fill in the questionnaire, it not only buys you time to have to fund the claim, but it makes the prior employee responsible to provide documentation supporting their claim. In most cases, the employee will fail to pursue or fail to show for any follow-up necessary. Oftentimes, you as an employer can avoid paying unnecessary claims by simply responding. The next step is to assess why you are experiencing turnover and make a decision to train, manage, or otherwise “fix” the reason behind the increased turnover.
Related to State Unemployment, there are two distinct advantages of joining forces with a PEO like HRBenefix. I can provide my State Unemployment Tax rates to my clients (typically lowering their payroll costs); and I also manage any/all unemployment claims coming through the door.