Posted in HR

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.” Dun-dun-dun. Now what? In this article, we’ll give you a game plan so you can deal with unemployment notices without bringing your day down.

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 can receive UI 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.

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, check out this example form from California.

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 nice and ready to deal with whatever unemployment claims slip into your mailbox. Claim your ground about these confusing little letters, and nothing will stand in your way.