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Are You Overpaying on the One Controllable Tax?

Human Resources

Businesses often assume that there's no way to control their State Unemployment Insurance (SUI) tax rates. A company's SUI premiums can range widely, often by several hundred dollars per employee per year. The actual rates vary based on two factors. The first is your state jurisdiction. The second is how many former employees have successfully filed for unemployment benefits against you. Managing your response to unemployment claims—specifically claims made by former employees who should not be eligible for benefits, because they left voluntarily or were fired with cause—can ultimately help lower your SUI tax rates. Here's what you need to know.

What is State Unemployment Insurance?
Federal-State Unemployment Insurance is a program that was founded in the 1930s to provide a safety net to employees who lost their jobs through no fault of their own. The programs are jointly funded by employers and employees and are administered by states. When an employee rightfully files a claim, benefits are charged directly to the employer or indirectly through their SUI experience rate. The SUI experience rate—along with big picture factors such as the health of the overall state unemployment insurance fund and the wage base—determine the final rates paid.

Employer Experience Rates
The SUI tax rates that employers pay are determined by specific formulas. The premise is based on the idea that the rates should be paid in such a way that those employers with workers who experience the most involuntary unemployment should pay at a higher rate than those employers with very few claims. Therefore, an active program to manage your response to unemployment claims is essential.

Steps You Can Take

When an employee files for unemployment benefits, your company has the option of protesting that claim. If your company can show that an employee left voluntarily or was fired for just cause, you can have that claim denied. Your company's SUI premium will not increase. An established HR partner with SUI specialists can help you navigate this process. Responding successfully to claims requires the ability to demonstrate a clear process and having the documentation to back it up. For example:

Employees who quit: In instances where an employee leaves voluntarily and without cause, they are not eligible for benefits. Documentation, in this case, may include a resignation letter, email trails related to resignation, exit interview documents, signed letters of separation, and financial details of any final payouts such as cashed-out vacation time.

Employees who are fired with cause: Employees who are fired with cause are not eligible for unemployment. Companies need to demonstrate that an employee knew the company's rules. For example, did they sign job and handbook acknowledgments while onboarding? From there, it's important to outline that the company used progressive discipline to address the problem; remained professional during meetings; and ideally, had the employee sign an acknowledgment of reasons for termination.

Are you interested in learning more about what reducing your state unemployment tax rate would mean for your bottom line? Visit the SUI Calculator to model different scenarios and determine your ROI for proactively managing this issue.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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