Unemployment compensation is a benefit that provides short-term assistance to individuals who are eligible according to state laws. To an unemployed person, unemployment insurance benefits may be a lifeline to survive in the midst of an uncertain period of time in his or her life. However, the term “unemployment” often evokes a sense of unease or even resentment on the part of employers. The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) impose payroll taxes on all employers, except for those organizations which are exempt from income tax under section 501(C)(3) of the Internal Revenue Code. Unemployment tax amounts are based on each individual state’s taxable wage base and an employer’s experience rating. Therefore, an employer’s payroll tax amount may be raised when a former employee wins the right to receive unemployment compensation. Beyond this required tax, when a claim is submitted by a former employee, valuable time is expended in completing required processes, following timelines, and gathering evidence. While most employers understand the big picture of unemployment, many of them may not recognize the value of taking time to learn about the unemployment process, or consider proactive measures which could mitigate the risk of paying out unnecessary unemployment compensation.
Employer Notification and Documentation
The unemployment claims and appeal process, employer tax amounts, and even terminology varies from state to state. In Indiana, the Department of Workforce Development (IDWD) is the state agency that determines whether an individual meets the following eligibility requirements:
- The individual must be able, available and actively searching for work.
- The individual must have earned a minimum amount of wages prior to his or her unemployment.
- The individual must be unemployed, through no fault of his or her own.
When a former employee files a claim for unemployment insurance benefits, all employers who employed that individual over the previous 18-months will receive a notice from the Indiana Department of Workforce Development entitled, “Separating/Base Period Employer Notice” (Indiana State Form 640R) and an “Unemployment Insurance Benefit Protest” form (Indiana State Form 640P). These forms must be completed and faxed to the Unemployment Insurance Adjudications Office within ten-days of receipt along with supporting documentation. However, before an employer submits the protest form, they need to determine whether it’s in their best interest to protest the claim. While the former employee may be eligible for full or reduced benefits, the employer may feel the employee should be ineligible for any benefits due to reasons such as gross misconduct, or the violation of an organizational policy. This determination is straightforward in situations where the employer has sufficient documentation to demonstrate the former employee’s ineligibility. However, even in situations that aren’t so easily determinable, the employer should carefully review any written evidence and consider the circumstances before making this decision. Written evidence may include attendance records, progressive disciplinary actions that led to the termination, policies related to the disciplinary actions, evidence that an employee was given the time and opportunity to correct his or her performance, and any documentation of emails, training, standard operating procedures, etc., which demonstrates the due diligence on the part of the employer to help the employee succeed in his or her job.
In the event that the employer decides to protest an unemployment claim, they may be contacted for additional information or may be asked to participate in a hearing with an Administrative Law Judge (ALJ). Often employers do not realize that submission of the initial protest form and supporting documentation is not sufficient for the Indiana Department of Workforce Development to deny a claim and that, if the claim goes to a hearing, previously submitted documentation is not forwarded to the assigned Administrative Law Judge. Therefore, it is the employer’s responsibility to ensure that the assigned Administrative Law Judge receives copies of all supporting documentation at least 24-hours prior to a hearing by either party.
A telephone hearing with an Administrative Law Judge, the employer, and the former employee may be set to determine whether the former employee is eligible for unemployment insurance benefits. During this hearing, it is up to the employer to demonstrate that the employee is either ineligible for unemployment insurance benefits or does not deserve to receive those benefits. The Administrative Law Judge will ask specific questions of both the employer and the former employee and, at the end of the hearing, will typically give a time frame for the decision to be made. Once the decision has been handed down, it may be appealed.
Often the tension is high during a hearing due to the differing perceptions of the former employee and the employer. Some employers, especially those who have witnessed action that provides for just cause of termination of employment, may feel frustrated or angered by the unemployment claims and appeals process. It’s vital, though, that throughout the hearing, the employer not appear to be antagonistic or confrontational in any way.
Proactive Measures for Employers Prior to an Unemployment Claim
One of the most difficult situations for an employer is when an employee was terminated for just cause but there is insufficient documentation to prove it. Long before an employer is subject to an unemployment claim, it is in their best interest to implement a written and consistently applied progressive disciplinary action policy as well as clear employee conduct and work rules. Supervisors should also be trained in managing employees. A clearly documented demonstration of policies and processes that are consistently applied at all levels of the organization may make the difference between winning or losing an unemployment compensation insurance hearing.
Consider the example of an employee named Joe, who has been employed by Company X for ten years. Joe is a great talker and is impressive to those who don’t know him well, but he often does not follow through on commitments and regularly turns in projects well after the deadline has passed. Everyone loves Joe, especially the President, so Joe’s supervisor, Fred, has never written him up. Fred has even covered up for Joe on occasion when he has missed his deadlines, rationalizing to himself that making Joe look good makes his team look good. However, a major product deadline was just missed. Fred is angry that he has had to put up with Joe’s poor performance for so long and wants to terminate his employment immediately.
In a termination like Joe’s, an employer may decide to ignore a notice of an unemployment claim because they realize they don’t have adequate proof of just cause for termination of employment. However, when an employer either purposefully or negligently does not comply with the submission of required documentation in a timely manner, or doesn’t show up at a hearing, they not only may forfeit the right to appeal the former employee’s eligibility of benefits, but also the right to a hearing, and the right to protest any charges to their unemployment tax account. The former employee will most likely win their claim, and the employer may incur penalties to their account, even if the individual should not be eligible for unemployment insurance benefits.
Unemployment compensation is a benefit and a right for individuals who are eligible according to federal and state laws. Like all programs, there are individuals who try to take advantage of the system or abuse the system, but for employees who are laid off or terminated through no fault of their own, it may be the only means of providing for themselves and/or their families until new employment is found.
Employers who educate themselves about the unemployment claim and protest process are able to prepare themselves so they are ready in the event that a former employee who is not eligible or does not deserve unemployment compensation insurance files a claim. The time spent in this preparation will be well worth the investment.
For additional information on unemployment compensation insurance claims or appeal process, please contact us at www.newfocushr.com.
Written by: Kathi Walker, SHRM-SCP, PHR
Sr. HR Consultant