How to Protect SUI Rates for Your Clients

Gusto Editors

Are you providing your clients with proper Supplemental Unemployment Tax support? 

To protect employees in the possible event of termination, each state collects Supplemental Unemployment Insurance tax or SUI. If an employee faces termination, SUI provides funding to the employee to ensure they have compensation while searching for a new employer. Unemployment tax rates are determined based on wages and the number of previous employees who filed for SUI at particular companies.

As a people advisor, you are positioned to help your clients keep supplemental unemployment insurance tax rates lower by providing advising options on the termination of employees. Every employee will not be a perfect fit for your clients’ businesses, and they could experience a rise in SUI tax rates if the situation is not handled correctly. If your clients struggle with high turnover and termination rates, it is highly likely that they already pay high tax rates for supplemental employment.

At Gusto, we want to give you the tools you need to help your clients grow. That’s why we have partnered with our friends at CPA Academy to bring you the webinar, “Getting Started With HR Advisory Services.” In this webinar, we tackle common issues with SUI taxes and how you can help your clients navigate the complex topic of employee termination.

Caleb Newquist, our very own Editor-at-Large, took the lead to present this guide to SUI. Caleb started his career in the world of accounting as an active CPA and spent much of his time in New York City and Denver. He is also the founding editor of Going Concern, which provides unique news and learning resources for accountants, and Yarn, a content studio geared toward accounting, before joining us at Gusto.

This article explains how to protect your clients’ SUI tax rates, how to handle the employee termination process correctly, and who is eligible for SUI after facing termination.

Protecting SUI rates

Employees separate from businesses for various reasons. The causes range from a disagreement in how the company runs to misconduct. If an employee leaves a company for good reason or faces termination for reasons other than misconduct, SUI is available until the worker can locate other employment. In many cases, employees are successfully able to receive unemployment.

“A lot of employers are surprised at how easily a former employee can actually establish a successful unemployment claim. The big misconception is that an employee terminated for substandard performance will disqualify that person from receiving benefits. In most states, unless that behavior rises to a level of misconduct, the former employee, or claimant, will be deemed eligible for unemployment benefits.”

– Caleb Newquist

Even if the termination results from poor performance, former employees can collect unemployment benefits, which results in higher SUI tax rates for the business. For employers to prevent an increase in their unemployment tax rate due to ex-employee filings, it is vital to document and outline proper business practices and performance standards for employees.

Employee talking to HR manager in the modern office.

“To further complicate things—not only does the employer have to demonstrate that the employee’s behavior was misconduct, but the employer also has the burden of proving the former employee knew or should have known that they could lose their job as a consequence of the behavior. It’s really important that there’s documentation around terminating employees … so that your clients can manage their SUI rate.”

– Caleb Newquist

Without proper guidelines and documentation, companies will struggle to prove employee misconduct in the event of termination. As a result, the employer’s SUI tax rate will rise. A rising rate can significantly impact a business’s ability to care for current employees and affect the overall sustainability of the company. To protect your clients’ SUI rates, it is essential to advise on pre-termination steps they should take.

Pre-termination best practices

Even though the odds are high that terminated employees will receive unemployment benefits, businesses can take steps to preserve their SUI tax rate. A significant way employers prove employee misconduct is through written warnings. Though they are not a requirement, written warnings create documentation of employee conduct leading to the point of termination.

“We’re going to talk about some best practices for pre-termination, and number one is written warnings. Even though warnings are not required by law, employees may have been led to believe at some point that certain steps will occur prior to terminations [including written warnings], and any employer who takes those steps should make a good-faith attempt to follow through. [Written warnings] provide documentation that is consistent with what the employer said they would do.”

– Caleb Newquist

In addition to written warnings, employers should develop employee handbooks and require employees to sign acknowledgment forms during the onboarding process. Employee handbooks protect companies by clearly communicating policies to new and current employees. Additionally, they reference what is and is not acceptable in the workplace. 

“Second, distributing an employee handbook and obtaining signed acknowledgment forms is a really important piece of this. By distributing those handbooks and having an employee sign that they have acknowledged them, your clients essentially have said, ‘We’ve communicated these policies, and our employees are aware of the results of violations of those policies.’”

– Caleb Newquist

A final step to take in the pre-termination process is the investigation of harassment and other serious workplace complaints. If an employee chooses to leave their employer based on another’s misconduct, they stand to qualify for unemployment benefits. When employers elect to investigate and monitor employee conduct proactively, the probability of harassment cases lowers.

“Third, your clients need to investigate all harassment, discrimination, and all kinds of other serious workplace complaints. In most places, if an employee resigns with good cause, they will be eligible for unemployment benefits. In other words, if they complain of a serious workplace concern and the employer took no effective action to address that allegation, that former employee is generally going to be eligible for unemployment benefits.”

– Caleb Newquist

Taking these three proactive steps helps businesses protect their SUI rate when employee termination occurs because it creates evidence of why the firing occurred. Written warnings document employee misconduct, employee handbooks provide clear guidelines regarding employee actions, and investigations into workplace complaints help businesses solve problems before they escalate to the loss of a team member. 

The reasonable person standard and post-termination best practices

Businesses must hold themselves to a reasonable standard during employee termination. Adhering to the reasonable person standard proves that the employer took the proper steps when considering termination and adequately followed through with the stipulated guidelines. In short, the reasonable person standard means the employer approached the termination from the position of any reasonable person.

Employee signing a contract in HR office.

“The reasonable person standard—this is a common guideline used when making unemployment decisions. [Employers] should consider whether a reasonable person would terminate an employee given the circumstances. … [This leads] to treating employees fairly and consistently with respect to termination decisions. … The agencies that look at SUI claims are employees, not employers, so they probably have opinions about what is considered fair treatment. By applying the rules and policies consistently, … you’ll reduce the chance that successful claims are made.”

– Caleb Newquist

In conjunction with adhering to the reasonable person standard, employers can also take steps post-termination to ensure the best outcome for protecting their SUI rate. Ensuring that paperwork is filed on time and including attachments to provide evidence of the reasons behind the termination makes the employer’s case stronger.

“A few post-termination best practices include submitting paperwork on time and including attachments as evidence to further your case. Those two are key. Also, inform your clients of the appeals process if an undesirable or unsatisfactory result [occurs]. It’s also important to remember and remind your clients that the burden of proof lies with them, so it is vital for them to retain this documentation and best practices to protect their SUI rate.”

– Caleb Newquist

When your clients take the proper steps to defend the reasons behind terminating an employee, they have a better chance at protecting their current SUI rate. Maintaining clear and concise employee policies, making reasonable decisions surrounding the termination, and treating employees fairly are all critical in the process. Providing support to your clients during this process via clear guidance and advice also gives them peace of mind that they are taking the proper steps.

Learn more about SUI tax and HR advisory solutions for accountants

Terminations can be challenging for your clients, but they can protect their SUI tax rate with the right advice. A lower tax rate will save your clients money, which will give them the resources they need to operate better. Ultimately, the best way for your clients to guard their unemployment tax rate is to create a positive work environment with clear employee guidelines.

“Here is a quick calculation of how [SUI rates] can impact businesses. Let’s say you have an imaginary employer with 15 employees in Colorado. They have a current SUI rate of 3.5% and a turnover potential of three. When you calculate their current SUI cost, it’s nearly $6,900 yearly. However, if that rate lowered by 1%, they would save nearly $5,000.”

– Caleb Newquist

If you are interested in learning more about how you can help clients protect their SUI tax rate and better serve them during the termination process, check out the entire webinar here. Also, be sure to look out for parts one, two, and three of this webinar article series for a more in-depth look at why you should offer HR services in your people advisory strategy and the best HR analysis reports to provide your clients.

Our mission at Gusto is to create a world where accountants focus on their clients’ people as much as their finances. Be sure to look into our People Advisory Program to learn how to train your team to help clients reach their potential. We also provide a partner blog full of resources for all your advising needs. Visit our Gusto for Accountants page for more information on utilizing people-based accounting within your firm.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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