By Elizabeth Stroup
As a small business owner, dealing with unemployment claims is something you may eventually face. This article walks through the essential facts that small business owners should know when handling an unemployment claim.
Who Qualifies for Unemployment Benefits?
Before responding, it’s crucial to understand whether the former employee qualifies for unemployment benefits. Here’s a basic breakdown:
Situations where the employee should not qualify for unemployment benefits:
- Voluntary Quit: If the employee voluntarily quits their job they are generally not eligible for unemployment benefits. They may be leaving because they found another job or they may have other reasons for leaving. The best way to prove this is to get a resignation letter when the employee quits.
- Job Abandonment: If the employee stops showing up to work and doesn’t communicate with you, it’s considered job abandonment. This is treated similarly to quitting, and they would not be eligible for benefits. Unfortunately, it may be harder to prove.
- Fraudulent claim: Occasionally, employers face fraudulent unemployment claims where someone who never worked for the company files a claim. You must respond to provide proof that the individual never worked for your business.
- Fired for Misconduct: Being fired for misconduct could potentially disqualify the employee from unemployment benefits. Examples of misconduct include frequent unexcused tardiness or absences, putting others’ safety at risk, or engaging in dishonest or criminal behavior. These are considered valid grounds for an employer to terminate an employee. However, the burden of proof is on the employer and strong documentation is required. The seriousness of the misconduct, any prior warnings, and/or if steps were taken to correct the behavior prior to the discharge will typically need to be documented. For instance, if you fire someone for drug use, you must show evidence of a company policy, a drug test, and fair enforcement of the rules to contest their claim.
Situations where the employee does qualify for unemployment benefits:
- Layoffs or Reduced Hours: Employees laid off due to lack of work or those whose hours have been significantly cut may be eligible for benefits. If you laid off the employee because you no longer needed them or cut their hours in half, they would typically qualify for unemployment.
- Fired for Cause Generally: Sometimes employers fire someone because of poor performance on the job. In these cases, the employee typically does qualify for unemployment benefits.
The information above should help you get a general idea of whether the employee should get benefits and if you have solid documentation to fight their claim. You may be wondering what the impact will be if they do draw unemployment benefits.
Here are some key things to know:
- You don’t pay anything extra immediately – the benefits come from a fund maintained by the state
- Benefits paid out to your former employees can cause your business to pay a higher unemployment tax rate for 3 years.
- The more former employees who draw benefits, and the longer they are drawing, that drives the rate up. However, the benefits paid out are compared with the number of employees that you pay in for. So 2 out of 5 employees drawing benefits is worse than 2 out of 20.
- If the former employee finds another job quickly, the effect on your tax rate might be minimal.
- Most of the time the extra unemployment tax you pay will just be a few hundred dollars per year.
When you need to dispute an unemployment claim because they should not be eligible for benefits, here are some tips to make the process easier.
1. Respond Quickly
Time is of the essence when you receive an unemployment claim. You may have as little as 7 days to respond, and the response deadline will be stated on the claim letter. Failing to respond will lead to automatic benefits for the claimant.
2. Watch closely for the next letter
Even though you respond promptly and accurately to the initial unemployment letter, they may still grant benefits that will count against you. You will need to respond again to continue fighting the claim.
3. Dispute Claims with Documentation
When you disagree with the former employee’s claim or the reason they listed for unemployment, you have the right to dispute it. You will typically be asked to submit documentation.
Your best defense is strong documentation. Keep records of:
- Warnings or disciplinary actions
- Attendance records
- Written resignation letters
The state may also set a hearing for both parties to testify to the facts of the situation. Sometimes you may get lucky and the employee may not bother to appear at the hearing.
4. Weigh the Costs of an Appeal
Before disputing a claim, consider whether it’s worth your time and energy. While it’s important to contest false claims, sometimes the cost of an appeal outweighs the financial impact of losing. You may want to consult an HR professional or attorney if you have questions about your situation.
If you win the appeal, the employee will be denied benefits. If you lose, the decision stands, but remember that this might not have a significant effect unless the employee receives benefits for a long period.
Conclusion
Responding to an unemployment claim can feel daunting, but understanding the process and gathering the necessary information can protect your small business from unnecessary costs. Always respond quickly, know when to dispute a claim, and keep thorough documentation to protect yourself. Armed with the information above, you can manage unemployment claims effectively and minimize their impact on your business.