Q: What Do I Do When An Employee Files An Unemployment Claim?

A letter is quietly sitting on your desk. You rip it open, and the words on the page make your head spin—”Notice of Unemployment Insurance Claim Filed.”

Now what? In this article, we’ll give you a game plan so you can deal with unemployment notices the right way.

What is an unemployment claim?

Put simply, it’s a notice that an employee files in order to get unemployment insurance benefits after being laid off. Unemployment insurance, commonly shortened to UI, provides financial help for folks who aren’t working for a reason that’s totally out of their control.

For example, people have unemployment insurance eligibility if they lost their job due to downsizing, seasonal work, or if a company shuts its doors altogether. An employee cannot, however, claim unemployment benefits if they’ve been fired for failure to perform as executed.

UI payments are calculated as a percentage of an employee’s income over a 52-week period. They can be claimed for a limited period of time, typically six months after the person left the company, or until that person finds a new full-time job.

While general guidelines for unemployment insurance are established by the Federal Unemployment Tax Act, nicknamed FUTA, it’s actually a joint federal and state program, which means each state, district, and territory has its own rules and regulations.

Crazy, right? Don’t worry, you can find a path through the maze of regulations. Use this Department of Labor site to find links to information for your specific state.

How does unemployment insurance impact your taxes?

Unemployment insurance is funded by federal and state taxes that are paid by employers like you. And yes, you pay taxes under both FUTA and the State Unemployment Tax Act (SUTA).

What you pay in taxes is determined by your state, and it’s typically based on three factors:

  • The size of your business
  • How much you’ve paid into the system
  • The number of former employees who’ve claimed unemployment benefits

If your company is exempt from paying income tax under 501(c)(3), you’re also exempt from paying into unemployment insurance.

Most companies are in fact subject to the FUTA tax if they can say “yes” to either statement:

  • Your company paid $1,500 or more to at least one employee in any calendar quarter.
  • Your company had at least one employee for some part of the day in any 30 or more different weeks. This includes full-time, part-time, and temporary employees, but not business partners.

What happens if you receive an unemployment claim?

When a former employee makes a claim through a state unemployment agency, you’ll be contacted to verify their reason for not being employed through something called a “Notice of Unemployment Insurance Claim Filed.”

On this form, you’ll be prompted for a number of details like:

  • Basic information on your former employee, including the reason for separation. These reasons may indicate that it was voluntary, that they quit, were laid off (for lack of work), or that it was due to a trade dispute.
  • Information about any compensation that you have or will pay.

To get a sense of what you may receive, take a look at this sample UI claim notice from California.

Simple time tracking that syncs with payroll.

How do you contest an unemployment claim?

So you took a look at the claim, and frankly, you don’t agree with it. If a former employee makes an improper claim for UI, you can contest it if the information is inaccurate, or if a successful claim will impact your taxes.

If you want to contest a claim for someone who was fired with cause, it’s up to you to prove that your decision to terminate that employee was valid. Letting a claim stand if someone has been fired with cause could have an impact on any potential legal action.

Here are a few questions to ask yourself before going through the whole contesting rigamarole:  

  1. Was the employee actually fired? If you fired an employee for serious misconduct, your chances are fairly solid.
  2. Do you have proof to back up your actions? If you say you fired someone with cause, but don’t have the paper trail to back up your claim, you probably won’t emerge victorious.
  3. Is it likely that there’s a lawsuit on the horizon? You’ll need to gather substantial evidence if you think you may end up in court.

Whatever the decision, both you and the claimant will receive a “Notice of Determination” once a decision is made. If the claim for UI benefits is approved, you’ll still have an opportunity to appeal the decision—but you should weigh the pros and cons before pursuing it. An appeal may take more effort than it’s worth.

At this point, you should feel ready to deal with any unemployment claim that comes your way.

Comments

  • Brittni Johnson

    Actually, you most certainly CAN be eligible if you’re fired, when the circumstances surrounding your firing are shown to be no fault of your own ie you were working “to the best of your ability.”

    I’m shocked that an article written by a so-called “expert” says otherwise.

    Reply
    • Gusto Editors

      Hi Brittni! Getting terminated for no fault of your own would technically be considered getting “laid off,” which is different than getting fired. We define the difference here, which we’ve also linked in the article above: https://gusto.com/blog/people-management/laid-off-fired-difference

      That being said, we’ve updated the language in our blog post to be more clear and say: “An employee cannot, however, claim unemployment benefits if they’ve been fired for failure to perform as executed.”

      Let us know if you have any further questions!

      Reply
  • A. M.

    Im trying to file for unemployment but it is stating I have no wages on file. My employer contacted Gusto who does our payroll and was told my quarterly wages have been sent in. It has almost been a month and I have no answers.

    Reply
    • Gusto Editors

      Hi A.M., sorry to hear you’ve had this experience! We’ve alerted our customer support team and they’ll be looking into your issue ASAP.

      Reply
  • Malik Mashan

    I am an employer and I receive the Notice for Unemployment my employee file, I agree with everything on it, do I need to do something still or no further action is required from me?

    Reply
  • BM

    I own a dance studio and had to close due to covid-19. I do not pay unemployment insurance but can my employees file for unemployment anyways?

    Reply
    • Gusto Editors

      Hi BM — while there is additional protection provided under the CARES Act, unemployment eligibility most likely will depend on your state laws. CARES created the Pandemic Unemployment Assistance (PUA) program which provides coverage to individuals who traditionally do not qualify for unemployment. They would receive the weekly benefit they otherwise would get under state law, up to 39 weeks. We recommend checking out your state’s employment or labor office to confirm!

      Reply
  • Andrew

    So as long as employers pay for the SUTA and FUTA UI taxes regularly (deducted by Gusto automatically), then there won’t be any out of pocket expenses when employees file for unemployment?

    Reply
    • Gusto Editors

      Hi Andrew — yes, that is generally correct. If an employer is a “reimbursable” employer (these are usually non-profits, churches, government employers, etc.), then they typically reimburse the state for any benefits paid to their employees. But most for-profit employers pay taxes into the state and federal funds to pay benefits, so there should be no immediate out-of-pocket expenses. The taxes the employer is already paying for their employees SUTA and FUTA pays the employee’s benefits. Please keep in mind that SUTA rates in future years may go up as a result of COVID to replenish the state funds.

      Reply
  • Andrew

    Thanks for clearing up. On step 3 of the Unemployment Notice, it does state employer potential charges for week 1-7 and week 8-26. Was nervous for the thousands of dollars listed as total

    Reply
  • vanessa siroti

    how long after an employee leaves a job do they have to file for unemployment with your company. We had an employee who resigned on 3/25/19 and we just got an claim for unemployment for them yesterday. We are in NJ. Thank you!

    Reply
    • Gusto Editors

      Hi Vanessa, you’ll want to reach out to your state unemployment office, since regulations may vary by state.

      Reply
  • Rose

    Hello, are employers required to notify their empoyees if they received an UI claim verification?

    Reply
    • Gusto Editors

      Hi Rose — you’ll want to reach out to your state unemployment office, as requirements may vary by state!

      Reply
  • Leticia

    I have a question, if my employee applied for unemployment how many times will I get notified about this unemployment claim? Will I only get notified once the employee filled or will I continue to recieve information regarding the claim, once I replied with the first notification?

    Reply
    • Gusto Editors

      Hi Leticia — you’ll want to reach out to your state unemployment office, as the process may vary by location.

      Reply

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