Article

Controlling Your Unemployment Insurance Costs

August 2006, Auto Dealer Today - WebXclusive

by Sandra Zabek - Also by this author

As employers, automobile dealerships need to control unemployment claims to reduce unwarranted benefit charges to their federal and/or state unemployment account(s). At a presentation from the American Payroll Association at their 22nd Congress, many ideas were shared to assist employers in controlling unemployment insurance costs.
In 25 states, an employee is not allowed to collect unemployment benefits and severance pay at the same time. States use different experience rating methods to determine an employer's unemployment rate (UI). The most popular method is the reserve ratio. It determines the rate by the ratio of the company's reserve balance to its taxable payroll. An employer that has paid out very little unemployment benefits in recent years could still have a negative reserve balance—thus a high state unemployment rate—even if it paid out a large amount of benefits as many as 25 years ago.
 
Currently, 26 states allow employers to reduce their UI costs through voluntary contributions. Included in this number are Indiana, Missouri, New York, Pennsylvania, Texas, Washington and Wisconsin. The rate notices of some states give examples of the cost savings that would be incurred at various voluntary contribution amounts. Since employers are not bound by the voluntary contribution amounts in the rate notice, it may be beneficial to do projections at other voluntary contribution amounts to determine if they result in greater cost savings.

Some companies may be able to reduce their overall state UI rates by combining their unemployment experience if they are related by ownership. Known as "common rate states"—which includes Arizona, Arkansas, Missouri, New Jersey and several others—the agreement to use a common rate is only for a year or two. Therefore, companies are not locked into using this method for a long period of time if circumstances change.

If a company is part of a merger or acquisition, the successor may be able to continue to use the previously taxed FICA and FUTA wage limits. If they filed UI returns, companies have up to the statute of limitations to amend these returns to reflect the UI wages that an individual earned at the preceding company.

You can also control costs by reducing your federal tax rate if all your unemployment taxes are paid as of January 31—to .8 percent of the first $7000 rather than the full 6.2 percent. An employer who is delinquent in filing reports or paying taxes or penalties cannot be eligible for a rate reduction for the next calendar year.

Another method to control the costs of unemployment insurance is to make a timely, full disclosure of facts relating to a claimant's unemployment benefit eligibility at the outset of the claim process. This is the best means of avoiding the hidden costs to an individual business and ultimately to all experience-rated employers.

For example, a timely response is made to an unemployment claim without sufficient factual detail for benefits to be denied, thereby resulting in a benefit payment sent to the claimant. The employer then requests an unemployment hearing at which all the essential factual information is presented for the claim to be denied.

In most states, the outcome would be that the benefit payments previously charged to the experience rating account are removed and an attempt to receive the money previously extended to the claimant would be made. Unfortunately, a very low percentage of these overpayments are ever recovered. This causes the Unemployment Trust Fund to be depleted, which has led the federal government to increase tax rates for all employers in the state.

As an employer, dealerships must understand the eligibility requirements of unemployment benefits. Claimants are only entitled to benefits when they become unemployed through no fault of their own. This includes being laid off, discharged for reasons other than misconduct, and quitting for good cause in connection with the employment. It might also include whether a reasonable person would consider the circumstances resulting in a claimant's unemployment to be real, substantial and compelling.

Fraud costs everyone. Costs for fraudulent unemployment claims are spread across the board, which means that all businesses pay a share. You can help control these costs by thoroughly reviewing every notice sent to you. If the person listed never worked for you, has not had their hours reduced, or still works for you full-time, contact the employment security department.

Employers should attempt to resolve disputes with state agencies prior to entering the appeals process by contacting the state agencies directly. The relationship that an employer develops with their state official could be beneficial in resolving later disputes.

By carefully keeping records of your employees in their personnel files, it will help you monitor and control your unemployment costs as well as provide documentation for fraudulent claims. Employee policies should be clear and records should be kept for each employee. You should document records of any employee orientations, training, evaluations, warnings and disciplinary actions.

When hiring new employees, verify that their Social Security numbers are correct by requesting a copy of their Social Security card. Protect your employees and your company by properly disposing of all old payroll documents and report any suspicious fraudulent activity on your employer account.

As you can see by these suggestions, there are many ways you can implement procedures or monitor your records to help control unemployment insurance costs at your dealership. Being attentive to these opportunities may reduce your expenses, help your bottom line and eliminate a few problems in the future.

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