June 24, 2021

Businesses Struggle With the Burden of Unemployment Claims.

Ms. White, 51, the founder of BnBFinder.com, a bed-and-breakfast search engine and booking site, hired the employee after the employee’s previous company, a Web site that matched aspiring authors with ghostwriters, went out of business. But then the ghostwriting site’s owner resurrected his business and hired the employee back. “And then, lo and behold, he went out of business again,” Ms. White said.

That left the employee unemployed and made Ms. White’s company responsible for $1,956 in unemployment claims. That put Ms. White’s account in deficit and threatened to drive up her unemployment insurance tax rate — even though the former employee had left her company voluntarily.

“You sit here afraid to hire anyone else,” Ms. White said. “It gives me pause and goes into my decisions. As a small business, I’m paying attention to what brand of coffee I buy for the office.”

With the economy stalled and the official unemployment rate hovering stubbornly around 9 percent, many small businesses are struggling to understand how unemployment insurance premiums are determined. The system is anything but simple and it varies by state, but it can be mastered and managed. Above all, owners should know that the more unemployment claims a company generates, the more it has to pay into the system.

The federal government charges employers a base rate of 0.6 percent of the first $7,000 of each employee’s wages each year. That federal money is used to cover the administrative costs for state unemployment programs; a loan program for states that do not have enough in their unemployment trust funds to pay claims; and extended unemployment benefits during economic downturns. When a state does not repay its loans — states now owe the federal government about $39 billion — the federal government raises the employer tax rate in annual increments of 0.3 percentage points. Right now, Michigan employers are facing a 0.9 percent surcharge.

While employers have no control over federal unemployment insurance rates, they can mitigate their state costs. In general, the states charge an unemployment insurance tax on part of each employee’s income based on the company’s unemployment history. Most states calculate a business’s tax rate each year based on a formula that considers payroll size, the amount the company has paid into the system and the amount of unemployment benefits former employees have collected.

That means a worker who collects unemployment can push his former employer (or multiple former employers, when there are several over the state’s base period) into a higher unemployment insurance tax bracket, often for several years.

A typical unemployment claim against a business increases the amount that business pays in state premiums in a range of $4,000 to $7,000 over a three-year period, said David Prosnitz, owner of Personnel Planners, a company based in Chicago that fights 15,000 unemployment claims a year for its 1,000 business clients. But it can be much worse.

Here is how the math works: Say you have a 10-employee business in Illinois. If you had not had any unemployment charges during the previous three years, the state unemployment insurance rate would be 0.7 percent — the Illinois minimum — of the first $12,740 of each employee’s wages, costing your business about $900 per year. If a laid-off employee then collected $10,000 against your account, your rate would go up to almost 5 percent, increasing what you pay to more than $6,000 a year for three years and costing your business more than $16,000 in increased unemployment insurance payments over that period — more than the employee would collect.

How can an owner manage the process?

“Hiring the right people is the first step in managing unemployment costs,” said David Blaine, a Bakersfield, Calif., employment lawyer with Klein, DeNatale, Goldner, Cooper, Rosenlieb Kimball. But if you make a mistake, act quickly. In Illinois and Virginia, for example, an employer becomes liable for unemployment benefits after 30 working days. It is important to know the period in your state and to be aware of the target date for each employee you hire.

“If you recognize you’ve made a bad hire,” said Ronald Adler, chief executive of Laurdan Associates, a human resources company in Potomac, Md., “the sooner you fire them, the better.”

Article source: http://feeds.nytimes.com/click.phdo?i=624fc68ec85d46434534e028208afa7a