FAQ – Frequently Asked Questions

The purpose of this document is to educate clients and potential clients about unemployment compensation. While some effort has been made to address the many differences in laws and procedures in the 53 different jurisdictions (each of the fifty states plus Puerto Rico, Washington D.C. and the Virgin Islands), the primary purpose of this presentation is to review some basic principles shared by many jurisdictions

The information contained in the examples given is general in nature and is not intended as legal advice. There are no guarantees that a particular state unemployment adjudicator will rule as others have in the cited examples. Individuals seeking legal advice concerning the handling of similar matters should consult with their attorney, rather than relying upon the information given.

Who pays for unemployment benefits?

The funding of unemployment benefits comes from payroll taxes paid by employers.

These taxes are used to pay unemployment benefits to the employer’s former employees.

For most employers, the tax rate goes up or down depending upon how much their former workers collect. Some organizations (usually non-profit or government agencies) reimburse the state, dollar for dollar, for any unemployment benefits paid by the state, in lieu of paying the tax.

In controlling your company’s unemployment costs, it matters little which method of funding unemployment claims is used (payroll taxes or direct reimbursement of benefits). However, reimbursing employers should be aware that they may not have the right to protest benefit charges, even in those situations where they were not the last employer at the time the claim was filed.

In all cases, it is in the employer’s best interest to limit the payment of benefits to former employees. Not limiting unemployment benefit payments will immediately impact the charges made to a reimbursing employer. Taxpaying employers will eventually pay a higher rate based upon unnecessary charges, but the increase may not come during the next tax year. Eventually, the organization’s tax rate will be pushed into the next higher tax bracket because of the cumulative unnecessary unemployment claim charges.

Which financing system is more advantageous?

It depends. If reimbursable financing has the disadvantage of not being able to protest all claim charges, why shouldn’t governmental or qualifying non-profit employers elect to pay the tax instead?

Reimbursing employers must reimburse the state dollar-for-dollar for the benefits paid to their former workers. Employers paying the payroll tax often pay at a rate which exceeds the state’s actual benefit costs. In these circumstances the employer’s paying higher tax rates are effectively subsidizing employers at lower tax rates.

Why Monitor Unemployment Costs?

Every dollar that a former employee collects in unemployment benefits, whether it is warranted or not must be reimbursed by that employer to the state by increased unemployment tax costs. Employers should view unemployment as a variable and controllable expense. Because the weekly unemployment benefit may amount to nearly 50% of the average worker’s week gross wages, the potential cost to an employer mis-handling an unemployment claim or benefit charge can become very expensive.

Who qualifies for unemployment benefits?

Only employee who have earned sufficient covered wages before becoming unemployed will have enough earned enough to potentially qualify for unemployment benefits. It requires a recent history of many weeks of covered employment before an individual qualifies for jobless benefits. In addition to filing a claim and having sufficient wages in covered employment, eligible individuals must generally provide the state unemployment agency with information which shows that they have fulfill all the following qualifications:

Are currently unemployed, or have experienced a substantial reduction in hours of work through no fault of their own,
Are able to work,
Are available for work,
Are actively seeking work
Are willing to accept any suitable work.

The state unemployment agencies examine an unemployed worker’s wages during a 52 week base period to determine whether he or she has earned enough to qualify.

Most states base eligibility on the wages earned during the first four of the last five completed calendar quarters. If the wages during this period are too low, a growing number of states will look at the last 52 week wage history just prior to the individual’s claim filing.

The weekly unemployment benefit amount for which a former employee is potentially eligible (the amount of money that may be collected weekly by a claimant) is based upon the amount of earnings reported by all employers during this one-year base period. It is usually not important to know which wages will be used by the state to determine monetary eligibility. However, it is important to understand that it is the employer, and not the worker, who pays for the benefits.

How can I prevent unnecessary unemployment costs?

Eventually, every job will end. Therefore, every work is potentially an unemployment claimant! So, your first contact with each applicant should begin with consideration being given to factors that will help you minimize unemployment charges.

The first step to controlling unemployment compensation costs is to hire the best qualified applicants. This requires that thorough checking of each applicant’s background before they are hired. Workers that are a good fit for the organization and the job are obviously likely to stay much longer. Employers save unemployment benefit costs, in large part, by avoiding job separations.

The second step is to give each employee proper orientation and training. Any future unemployment case could hinge upon your ability to prove that the worker was properly prepared and trained. Have the worker sign-off on all training courses and orientation material they receive, including such items as your employee handbook and/or lists of your organization’s rules and standards.

Terminate unsatisfactory workers as soon as it becomes known that a hiring error has been made. Discharging workers that are unable to meet the employer’s reasonable expectations will generally make him or her eligible for jobless benefits. In most states, however, the amount of potential liability on unemployment claims is limited to a percentage of wages each employer paid during the base period. The best way to protect against unnecessary charges from such separations, therefore, is to assure that the unqualified worker is terminated as soon as their inability to perform their job functions has been confirmed.

Making early decisions about whether a new employee is qualified is even more important in last employer states. A “last employer” state is a state in which the entire claim is charged to the last employer; Georgia, Illinois, Kentucky, New Hampshire, Rhode Island, South Carolina and Virginia are all “last employer” states. In these states, employers should give consideration to discharging unsatisfactory employee before they have worked for your organization long enough for it to qualify as their “last employer”. If you have workers in any of these states, we recommend that you call these state agencies and ask them for their exact definition of a “last employer.”

Protecting your account in “last employer” states (those states that charge the entire unemployment claim to the last employer) requires making early decisions about whether to keep new employees. For example, Illinois defines a “last employer” as the employer that last provided the claimant with 30 days of employment (whether in the base period or not). In addition to paying for the entire claim, an Illinois “last employer” that pays wages allowing an individual to re-qualify for benefits after a disqualification will be charged, even if the 30 day definition is not met.

Whenever you make changes to your policies, rules or requirements, be sure that you have all workers acknowledge in writing that they understand these new expectations.

Whenever it is necessary to warn or counsel a worker, it is essential that a proper written record be kept. This is true even when your policy allows you to give verbal warnings. Your written record should include the basic facts concerning the warning or counseling session. Be sure to include the action (if any) that the worker agreed to take to correct the problem. Verbal warnings or counseling sessions still need to be recorded. When feasible, have another manager or supervisor observe your counseling sessions. This could be important later when the worker gives a different version of your meeting to the state unemployment agency.

The employee’s signature on a written warning is helpful, but lack of a signature can be overcome. If you ask the worker to sign the warning or counseling notice and they refuse, whenever feasible, you should have another supervisor sign the notice: “Witnessed by (supervisor’s name) on (date).” Another alternative is to give the worker an opportunity to write an explanation on the back of the form stating why they chose not to sign the document. The worker’s writing on the back will serve to establish that he or she was notified of the performance deficiency.

Follow your own policies. You can’t justify discharging an employee unless you followed your own rules. For example, if your rules specify that individuals are entitled to three warnings on specific types of infractions before they are discharged, be sure that they receive three warnings (and are discharged only following the fourth infraction).

Make sure you have the facts before you discharge an employee, but don’t delay taking action. Your failure to act immediately may be interpreted by the state agency as condoning the act. Conduct a careful investigation before you discharge a worker. If necessary, give yourself time by quietly suspending the worker during your investigation. This will also help to make it clear that you are not condoning the worker’s actions. Give the worker an opportunity to fully explain his or her behavior before you decide to end the employment relationship. Talk to all witnesses that observed or heard the alleged misconduct, not just to volunteers. If your investigation exonerates the worker, be prepared to return the worker to the job with full back pay for any wages that were missed during your investigation.

Don’t play favorites. Failure to reprimand your favorite worker for rule infractions can seriously undermine your rules. In order for the state unemployment agencies to take violations of your rules seriously, you must be able to show that they are consistently enforced.

It is important to make a written record of each infraction. Managers and supervisors generally overestimate their ability to remember events. Even if you can recall the events perfectly, without a record you will not be able to prove that the worker has been put on notice. Don’t expect your assertion that the worker was counseled to overcome the former worker’s denial; these statements may be dismissed by the state as self-serving. If you are required to attend a future unemployment hearing, you will need written records to support your testimony.

What is the definition of misconduct? Does misconduct disqualify a former employee from unemployment benefits?

The necessary elements needed in order to establish disqualifying misconduct are knowledge, culpability and control:

Knowledge – A discharge should not come as a surprise. The worker must have an understanding of the behavior that his or her employer expected and be aware of the likely consequences of failing to meet the employer’s expectations. Without a clear understanding of the expected behavior, it is often not possible to prove that the employee’s actions were willful (this is why we suggested earlier that you make written records of all orientation, training and counseling sessions).
Culpability – The employer must have been damaged. Does the objectionable action (or inaction) have a harmful (or potentially damaging) impact on the employer?
Control – The employee must have had the ability to do otherwise. Did the worker have command over the situation? The worker must have had sufficient control over his or her actions to prevent the final incident.

Isolated incidents of poor judgment are normally not disqualifying. The employer must be prepared to show that the former employee’s behavior is part of a pattern of misconduct. Misconduct that is part of a pattern by the employee, or which is considered especially egregious or potentially dangerous by the judge, will usually result in the employee’s disqualification.

Are quits treated differently from discharges in an unemployment case?

Sometimes, it may not be clear whether a worker quit or whether they were discharged. Here is an example of someone that quits in lieu of discharge (e.g. “quit, or you’ll be fired”). How does the state treat such job separations?

The state agencies decide whether a case should be treated as a quit or a discharge based upon which party, the employer or the worker, first moved to end the relationship. If the employer asks a worker to submit a letter of resignation, the employer has moved first. Therefore, the state agency will apply discharge standards to the separation (see the misconduct section of the FAQ). They will rule based upon whether the worker had knowledge of the employer’s expectations, whether the worker actions established culpability or harm to the employer’s interests, and whether the worker had control over the behavior that resulted in him or her being asking to resign.

The moving party concept is applied whenever there is doubt about whether the case should be adjudicated as a quit or a discharge. Sometimes this can be tricky. For example, suppose a worker gives the employer two weeks notice prior to quitting. Suppose further that the employer tells the worker that it will not be necessary for him or her to work the two weeks. Is this a quit or a discharge? Surprisingly, most states would rule that such a separation was a discharge! This is true because the employer has set an earlier date of separation than the worker intended. If an employer wants the worker to leave earlier than the notice he or she has given, and they are unable to mutually agree upon an earlier date, the employer should consider paying the worker though the date of the notice. Paying the worker through the date of his or her notice will not change the effective date the worker has selected for the separation. The state will therefore usually view such separations as voluntary quits.

Forcing the worker to leave before they want to will usually make the person eligible for unemployment benefits, even if the reason that he or she gave for quitting was not compelling.

How does the fact that a worker quit or was discharged change the eligibility determination?

As has been previously discussed, it is necessity for an employer to establish knowledge, culpability and control in discharge cases. In instances where a worker voluntarily ends the employment relationship, the worker has the burden of establishing that he or she had compelling reasons for quitting. This may not be easy. He or she must show that reasonable efforts have been taken to resolve the situation before quitting. In addition, many states require that the reason for quitting not only be compelling, but that it also be connected to the employment.

The following states allow some exceptions to the requirement that the reason for quitting be connected to the job: Arizona, Arkansas, California, Colorado, Florida, Illinois, Iowa, Kansas, Maryland, Massachusetts, Maine, Michigan, Minnesota, Missouri, New Hampshire, Nevada, North Carolina, North Dakota, Ohio, Rhode Island, South Dakota, Texas, Utah, West Virginia, and Wisconsin. These states may pay unemployment benefits when the reason for leaving is truly compelling, even when it is not connected to the job.

Employers can increase their chances of winning unemployment cases involving voluntary quit situations by being responsive to genuine worker concerns. For example, if a worker has a serious medical problem, the employer should consider granting a leave of absence, or (if appropriate) moving the worker to an area where the medical problem is not aggravated. A worker’s chances of collecting unemployment benefits are greatly enhanced if he or she can establish that the employer ignored his or her serious complaints.

How important is documentation in an unemployment case? Previously, we have talked about the importance of keeping records of all disciplinary actions. Let’s address the best way to prepare these records. It is important that you learn to record facts rather than conclusions. For example, you should record that a worker’s speech was slurred and that he or she fell against the wall, rather than just recording your conclusion that they were drunk. Incidentally, the best way to establish that a worker was drunk is a blood or urine test.

Don’t be tempted into recording conclusions just because it is easier. For example, it is necessary to record that a worker was absent due to illness on April 24th and then absent again on April 28th due to child care problems and then again on May 3rd due to car troubles; it is not sufficient to simply write that the worker was excessively absent.

You should try to avoid using words and phrases such as bad attitude. Instead, your documentation should describe what happened to cause you to reach the conclusion that someone had a bad attitude. For example, if a worker slammed the cabinet doors so hard that one of the hinges came off, you should record that incident. Whereas the slamming of a cabinet door is easily proven, it is virtually impossible to prove that a person’s state of mind was negative.

Your documentation should be specific enough to allow all readers to form the same mental picture of the incident you are recording. For example, if you were to record that a worker was discharged due to “misconduct on the floor,” three readers of your documentation would likely have three different mental pictures of the final incident. If, on the other hand, you were to record that the worker struck his supervisor on the head with a 2 x 4, everyone would be able to picture this incident in a similar way.

What’s the best way to document employee absences and tardies?

Record not just the dates and times but also the reasons given for absence or tardiness. This is necessary even if you have a no fault policy which allows you to discipline or discharge based upon a specified number of incidents of absence or tardiness.

What should I do when I receive an unemployment claim?

The best answer is probably – call Corporation Counseling Service. However, if you intend to respond to an unemployment claim, do it promptly. Failure to respond within a relatively short time limit (10 days or less in most states) will generally result in an unfavorable decision, regardless of how strong your case is.

If the worker was laid off due to lack of work, he or she will normally be found eligible for unemployment benefits. However, submitting information about vacation pay or other forms of remuneration paid at the time of separation could result in a finding that the worker was in effect still employed until after the period covered by these additional payment(s) has elapsed.

If the worker was discharged for misconduct, write a brief explanation about the worker’s actions (or inaction) which led to his/her discharge. Remember, the state agency will be looking for information that establishes knowledge, culpability and control (see the section of the FAQ on misconduct). Therefore, include information about any related warnings, any damage caused by the misconduct and any information which would help to establish that the worker had control over the situation which led to his/her discharge.

If the worker voluntarily quit, your claim response should include information about any action the employer took to help the worker solve any problems connected with his/her reason for leaving.

If the state agency contacts you for additional information, be sure to respond back to them promptly. Because the states are under time constraints to make decisions, they will usually go ahead and make their decision without your additional information. Even though their questions may seem irrelevant or cause you to do some further investigating, it is usually easier to dig up answers to their questions at the initial determination level than to take the case to an unemployment hearing later on.

What should I do if an unemployment hearing is scheduled? Both the employer and the claimant have the right to appeal any adverse eligibility determination. Employers should therefore be prepared to not only appear at unemployment hearings, but to appeal the decision if they disagree with a decision.

The initial eligibility determination is made by the local unemployment office. The evidence at this level is generally weighed very informally. The claims interviewer generally decides on the facts based upon his/her impressions about which party is most credible.

When a case is scheduled for a hearing, on the other hand, the evidence is looked at much more carefully. At a hearing, whether the parties appear in person or by telephone, the testimony will be recorded and the claimant and witnesses will be under oath. Therefore, employers should be prepared to present their evidence in a way which will maximize their chances of protecting their reserve account. This means that employers should be prepared to present first-hand testimony from those persons with personal knowledge of the facts which led up to the separation. The same evidence presented by someone else will not be given as much weight because it will be viewed as hearsay. Be sure to read the hearing notice very carefully. You may be required to submit any records in advance, and to provide copies of submitted documents to the claimant. This is especially likely if the parties are scheduled to participate by telephone. Failure to send these documents in advance may prevent you from using your records as evidence at the hearing.

Do not depend upon your records to carry the case. At a hearing, the claimant’s own sworn statements usually will be given more weight than any documents. Even a sworn affidavit from the employer will be given only limited weight. Nevertheless, documents can provide powerful corroborating evidence, if presented by the proper witnesses. In addition, good records containing the facts (rather than conclusions) will allow the witnesses to remember the specific details that preceded each disciplinary action.

If one of your first-hand witnesses will be unable to attend the hearing, ask the judge (or referee) if you might be allowed to have them appear by telephone. Try to anticipate which witnesses will be needed to prove your case. If some potential witnesses will be unable to attend, bring whatever witnesses you can and try to arrange in advance to have any other potential witnesses standing by to participate by telephone, if their testimony is needed.

If an unforeseen witness becomes necessary due to unexpected testimony, ask the judge for a continuance in order to refute the claimant’s testimony at some future time.

When you receive the judge’s decision, review the reasons for the decision as well as the facts as presented in the written decision. If you disagree with the reasons or the facts, you generally have the right to appeal the case to the next level (in the form of a letter to the appeal tribunal). If you want to dispute the facts, you usually can request a copy of the hearing transcript. The Board of Review (The Appeals Board in California) will generally not allow the parties involved to submit additional evidence, but you can refer back to the earlier testimony on the transcript or question the judge’s reasons for the decision.

If you are unsuccessful at this second level of appeal, you can always take your case to court. While the cost of an unemployment claim rarely justifies a court appeal, in certain circumstances the precedent set in a court is well worth the cost.

What should I do if an unemployment hearing is scheduled?

Both the employer and the claimant have the right to appeal any adverse eligibility determination. Employers should therefore be prepared to not only appear at unemployment hearings, but to appeal adverse decisions.

The initial eligibility determination is made at the local unemployment office. The evidence at this level is generally weighed very informally. The claims interviewer generally decides on the facts based upon his/her impressions about which party is most credible.

Be sure to read the hearing notice very carefully. You may be required to submit any records in advance, and to provide copies of submitted documents to the claimant. This is especially likely if the parties are scheduled to participate by telephone. Failure to send these documents in advance may prevent you from using your records as evidence at the hearing.

If an unforeseen witness becomes necessary due to unexpected testimony, ask the judge for a continuance in order to refute the claimant’s testimony at some future time.

When you receive the judge’s decision, review the reasons for the decision as well as the facts as presented in the written decision. If you disagree with the reasons or the facts, you generally have the right to appeal the case to the next level (in the form of a letter to the appeal tribunal). If you want to dispute the facts, you usually can request a copy of the hearing transcript. The Board of Review (or The Board of Appeals in California) will generally not allow the parties involved to submit additional evidence, but you can refer back to the earlier testimony on the transcript or question the judge’s reasons for the decision.

Can I appeal erroneous unemployment charges to my account?

Of course! Employers should audit each charge made against their account(s). While most states will automatically send employers a periodic notice of the charges, a few states only send you charge information when you request it. Be sure that you compare each charge with the earlier applicable claim determination. Just because you won the case does not guarantee that your account will be protected. If you find inappropriate charges, ask the state to remove them. Employers are allowed to appeal charge discrepancies just as they would claimant eligibility issues.

What are voluntary unemployment tax contributions, and are they right for my organization?

Taxpaying employers in just over half of the states have an annual option of buying down their tax rates. This means they are permitted, within a strict time constraint, to contribute an amount in excess of their assigned rate. This excess tax payment will be applied toward a recalculation of your current year’s tax rate assignment. Buying down your rate obviously makes sense only in those in instances where the contribution needed to reduce the rate is less than the annual projected tax under the original rate assignment. If you have doubts about whether a voluntary contribution will be advantageous, ask the state agency.

The ever-changing list of states which allow voluntary contributions currently includes the following: Arizona, Arkansas, California, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Texas, Washington, West Virginia and Wisconsin.

Employers paying state unemployment taxes in these states should read their tax rate notices very carefully. Some states restrict voluntary contributions to specific circumstances. For example, California does not allow voluntary contributions in those years when tax Schedules E or F apply. [Note: As of January 2010, California is not allowing employers to make this option] Tax paying employers in the state of Washington are not allowed to make voluntary contributions unless they have experienced a tax increase of at least 6 rate classes. Employers should be sure their calculations are correct before they elect to make voluntary contributions. Many states will not return any extra payment amount whether or not it reduces your rate assignment.

How can an acquisition or merger affect my unemployment tax rate?

If a taxpaying employer acquires another business, the acquiring (and in some cases the acquired) employer may have a say (depending upon the state) as to whether a composite rate will be assigned. Employers should, therefore, review the tax-rate implications of combining the two companies’ unemployment tax histories. You should not just assume that combining the two accounts will be beneficial. Even if you only acquire a portion of a tax-paying entity, you may benefit by transferring a portion of the organization’s unemployment tax history. Most state unemployment agencies are willing to help you decide whether a transfer of experience is permitted, and some may even advise whether it would be beneficial.

Do we need to Outsource the Unemployment Cost Containment Activities?

That is a decision that only you can make. Do you want to try and be an expert in an area that is not related to your primary business? Are you confident that your staff is doing everything correctly to avoid all unemployment compensation claims that should be avoided? Have you lost your rights to protest claims as a result of missing state-imposed deadlines? Do you have the time resources to keep up to date with the current unemployment law, regulation, or precedent case law changes in your state? Are those who are responsible for the daily processing of unemployment claims in your organization, reporting back on a periodic basis as to the results of their efforts on reducing the firm’s unemployment costs? Are those on your staff responsible for hiring, firing, and discipline within you company being trained and periodically kept current on the recent law and precedent changes? Is your firm constantly monitoring your unemployment charges for improper or incorrect state agency charging errors?

If your answer is no for any of these questions, your organization is most likely one of the 3 out of 4 employers who are being assessed more in unemployment claims and charges than they should be. The simple truth is that employers can not possibly monitor and successfully reduce their state unemployment accounts as well as a third party whose sole focus is unemployment cost reduction.

Are there significant overcharging errors made by the states?

In a recent GAO (Government Accounting Office) study, it was shown that nationwide nearly $1 out of $10 dollars in unemployment benefits are improper payments. Studies show that some states are making overcharging errors at a rate of 15-20%. Employers should be concerned that these errors are being accidentally charged against their state unemployment accounts. By not having the correct controls in place, an employer is most likely being assessed thousands of dollars in unwarranted unemployment claims, which directly increases that employer’s state unemployment costs.

How is Corporation Counseling Service (CCS) different from most Third Party Administrators (TPA’s)?

Your company is unique in the products and services you offer and the strategies that you follow to pursue your business. Corporation Counseling Service differs from other third party administrators in that it focuses is on the individual unique characteristics of your company and formulates a strategy that fits your needs and style in containing unemployment benefits. No two employers have the same problems or concerns; therefore, no uniform solution will work for all employers.

You want to avoid unemployment claims and we do it, so CCS stresses the importance of being active and not reactive. The ultimate success of avoiding an unemployment claim is directly linked to what occurred prior to the separation. Working closely with your supervisory personnel we will help your company reap the greatest financial savings. The most effective results are gained when CCS is viewed as the client’s unemployment compensation staff. No situation is too straight-forward or too simple that would not require active cooperation between you and CCS to avoid any possible unfavorable or incorrect charges. Combining your knowledge of the situation at hand and CCS’s knowledge of the laws and statutes positions your company for maximum savings of unemployment costs.