No employer wants to pay out more money to employees who are no longer working for them, especially those who couldn’t do the job or who engaged in serious misconduct. But unemployment benefits seem to be granted no matter what you do, and no matter how responsible the employee was for their own termination. In this trainer, we will address when and how to best spend your energy when it comes to unemployment benefits.

Start Strong: During the First 90 Days of EmploymentIs this woman a volunteer if she was paid?

Even when they’ve been burned before, employers tend to be optimists when someone new comes on board. We want our new employees to be everything we hoped. We give them every chance, sometimes too many chances, and ignore any nagging feelings that the person isn’t going to work out. But this is a critical period of time.

As a general rule: Hire slowly, fire quickly.

Teach yourself to be realistically critical of your new hires. That new assistant whose resume boasted of her extensive experience and patient communication skills is supposed to be showing you her absolute best performance during her first weeks on the job. If, instead, she is only causing you grief, and not picking things up as expected, be prepared to cut her loose (or, as we say, “Free her up to pursue other job opportunities for which she may be better suited”).

If you miss the chance to fire an employee within the first 90 days, you might be costing yourself money. Even though in most states an employee can be eligible for UI benefits even after one day of employment, usually your liability is proportionate to the amount of time the employee worked for you. Some states apply the “last employer” rule, which provides a grace period before you can be charged as an employer. For example, in Illinois, an ex-employee must have been on the payroll for at least 30 working days before the employer will be considered the “last employer” and be charged for unemployment insurance benefits. Call CEDR if you are unclear on your state’s rules.

How are Unemployment Claim Costs Taxed to Employers?

To cover unemployment insurance, employers pay federal and state taxes (i.e., FUTA) on the wages paid to each employee up to a certain amount. Tax rates are generally set according to an employer’s experience rating, with a set amount for new employers. Higher usage of the insurance (i.e., more claims by employees, and/or employees who receive benefits for longer), means a higher tax rate. The more employees you have, the more a tax rate increase will affect your bottom line.

As for which employer is charged for a claim, most states use a proportional approach: the longer the employee worked for you, the more you are on the hook for their claim. Although each state has its own system, in general it works like this:

Once the claim is filed, the state agency will gather information to determine the wages paid by the employer(s) of the claimant for a 12-month period consisting of the first four of the last five calendar quarters preceding the quarter in which the claim was filed. This is called the “base period.” Each employer must have paid wages of a certain amount in order to be included as a base period employer, and the employee must have earned a minimum amount overall. The ex-employee’s total earnings are added up and the claimant’s weekly benefit amount is calculated according to whatever percentage the state allows (usually between 50 and 60 percent of the normal weekly earnings, up to a maximum). Each employer in the base period is charged for a proportion or percentage of the weekly benefit based on how long the employee worked for each employer. So, again, limiting the length of employment lowers your liability.

How to Minimize Liability

There are steps you can take to minimize your tax liability or avoid paying claims. First and foremost, do not ignore anything you receive from a state agency. Deadlines for responding with information regarding the ex-employee’s wages, dates of employment, reason for discharge, severance pay, etc. are generally very tight – less than 10 days. As soon as you receive a form, act on it immediately.

The general idea is that unemployment benefits are granted when employees lose their jobs at no fault of their own. The most common ways to avoid paying a claim for benefits at all is to prove that the employee was fired for “misconduct” related to the job, or to show that an employee has voluntarily quit.

What Constitutes Misconduct?

Virtually all states disqualify ex-employees who have been fired for misconduct, but proving it can be nearly impossible. Even though unemployment benefit offices are supposed to be neutral entities, in many states it seems an employee must commit some sort of felony to be disqualified. In fact, in some states, gross misconduct is defined as committing a felony while on duty, or gross negligence resulting in injury (to a patient, for example). Misconduct almost always must be “willful,” which means the person knew and intended to disregard the interests of the employer, or should have known their acts or inaction would likely damage the employer. Some examples of disqualifying misconduct are:

  • Stealing, fighting, or falsifying information
  • Filing a false claim for unemployment
  • Deliberate violation of company rule(s) without good cause
  • Excessive absenteeism without good cause (but not considered willful if the employee’s reason for absence was illness, transportation problems, child care, civic duty, bad weather, etc.)

In all states, termination for poor performance alone is not considered misconduct, and the employee will usually be able to collect benefits. Likewise, good faith errors in judgment, inefficiency, and simple negligence are also not considered misconduct in most states.

Your Handbook Can Help!

As mentioned above, employees can be disqualified for willful violation of a company policy. But the burden will be on you to establish that the policy was clear (not vague), known by the employee, reasonable, that the employee had a warning that further violation could result in termination, and that they did not have some other reasonable excuse not to comply. Talk about having the deck stacked in their favor!

Despite these long odds, having a clearly written handbook that has been signed and acknowledged by your employee can serve as the basis for disqualification from benefits. Next, use written corrective actions to notify the employee when they are in violation of your policies, and let them know that failure to correct or improve may result in termination. Include, where applicable, words such as “willfully” or “deliberately,” to indicate that this is a case of misconduct. If the employee refuses to sign the corrective action notice (a clear violation of your CEDR handbook policy), you can usually proceed to termination. Your documentation will be critical should you decide to dispute an ex-employee’s claim. If it’s only your word against theirs, it’s likely not worth your energy and time to dispute the claim.

“You Can’t Fire Me, I Quit!” – Voluntary Termination

An employee who voluntarily quits without good cause is generally not eligible for benefits. But often the employee will claim they were actually fired in order to get benefits. It’s always good to get an employee’s resignation in writing whenever possible. Even an email or text will work. When an employee does not provide a written resignation, or fails to show up for work and does not call in for two or more days, you should send a confirmation of resignation letter to document your acceptance of their resignation. Try not to get too caught up in the semantics of a quit versus fire. That determination will be made by the UI adjuster, and you calling it something different will have little impact on that decision.

Finally, Be Aware of “Constructive Discharge” Claims

Just because the employee stopped showing up for work does not automatically immunize you from a claim for unemployment benefits. The ex-employee could try to make a case that they were forced to resign due to intolerable work conditions. This type of claim is called “constructive” discharge. If substantiated, not only would the employee still be eligible for benefits, they may have the basis to bring additional legal claims as well.

Understand that your response to a claim for unemployment benefits becomes part of the legal record for any future claims. So, it is always important to counter any false claims, even if you do not want to dispute benefits. And if you know the person intends to pursue discrimination or other claims, consult CEDR or even local legal counsel from the start, to help set you up for the best defense possible.

When deciding whether to dispute a claim, our general rule is to dispute only if you have a good chance of winning. But always respond if your employee makes a false claim, or if you need to correct the record as to what actually happened.

Three Things You Can Take Away:

  1. Follow the adage, “hire slowly; fire quickly.”
  2. Poor performance alone is not considered misconduct. As always, a properly acknowledged employee handbook and written corrective action can be instrumental in supporting a disqualification of benefits.
  3. Remember that your response to a claim for unemployment benefits becomes part of the legal record for future claims, so be sure to counter any false claims and correct errors.

Need help? Members may call 866-414-6056 to speak with an advisor.