State Unemployment Tax (commonly referred to as SUTA) is the next big tax increase your staffing company faces.
It is no secret that the nation’s employers have been shedding jobs for nearly a year. These unfortunate people then apply and collect unemployment benefits while they search for another job. Unemployment benefits serve a real purpose in helping stabilize people’s lives while they are temporarily out of work. However owners and managers, especially of staffing companies, need to remember who pays for these benefits.
Unemployment Insurance is a tax paid by every company in the United States that has employees. The more people are that are employed, the larger the fund gets. In times of high employment, the unemployment insurance fund has more than enough money to pay its beneficiaries.
It is from this pool of money that employees receive monetary unemployment benefits. Each company pays this tax in the state where the employee works. The tax is calculated as a percentage of payroll that is determined by each state. It is adjusted each year based on the number of claims that are paid to employees that are no longer employed by your company.
In our current era of increased layoffs, it may be difficult to place employees that are ending their current job assignments into new ones. In other words there may not be enough open orders to offer jobs to the temps. Further exacerbating the problem, the federal government may extend unemployment benefits for a longer period of time if the current recession lingers.
This is understandable if there are few available jobs and an individual cannot find one. But as state unemployment funds deplete nationwide and more money is needed to pay the current beneficiaries, how will the government fund it? Most likely, by increasing the % tax that each business owner in America pays.
It is very important that employees receiving unemployment payments truly are deserving of those benefits. The more claims that are paid against your company, the higher the tax rate will be the following year.
A good example of this involved one of our current staffing clients. They landed a large account with a major bank. They placed in excess of 150 employees a day in the bank’s processing center. This is an established staffing company that did not add a lot of fixed costs and luckily continued to grow their customer base. As the banking crises in the U.S. spread, this large bank laid-off all of its temporary personnel. Since our client could not place all of these employees in other positions, the laid-off employees applied for unemployment benefits which they were entitled to receive.
The next year our client’s unemployment rate more than doubled for all its remaining employees due to this one big layoff. This is an example of increased variable costs resulting from the loss of a major account.
Employees that wrongly apply for claims can be successfully denied unemployment benefits by following a few simple rules with a basic concept – Document, Document Document
1. Make sure to offer an employee finishing an assignment another assignment that he or she is qualified to do.
2. Document each employee’s work performance and assignments offered via phone, email etc.
3. If an employee quits - document the reason. If the reason is unknown then describe the circumstances which led you to conclude the employee quit.
4. If you receive a claim from the state, respond as timely and provide as much documentation as possible.
The last thing most of us want to do is see an ex-employee struggle financially. However, you as a business owner or manager need to do what’s best for your business. In this case – control next years unemployment costs.
There are very legitimate reasons for disputing an unemployment claim. Listed below are the most frequently used explanations to disqualify an unemployment claim:
Discharge for misconduct in connection with work
Voluntary quit due to health reasons
Voluntary quit due to working conditions
Discharged for dishonest or criminal act
Failure to perform work assignment
Excessive tardiness or absenteeism
Discharged for drug related offenses
Not all state laws are the same. You should also review the laws regarding unemployment claims in the state(s) where your employees work.
Automate the process.
Again, the simplest but most important thing your staff can do to reduce the amount of unsubstantiated unemployment claims is to document the work history and performance of each employee. By utilizing software and a payroll service, your staff will be able to easily create and access detailed records on each employee. Staffing software also allows you to track open job orders, thus allowing your company to quickly and efficiently place an employee coming off assignment onto another job.
