The impact of unemployment extends beyond the financial repercussions that it can bring to affected employees. It can complicate payroll and HR processes, and create administrative burdens.
Given that the Department of Labor recently announced that unemployment insurance claims have reached their highest levels since February 2016, it’s in an HR department's best interest to have the infrastructure and technology in place to manage the processes associated with unemployment insurance claims.
Here's a look at how payroll services have evolved to help employers manage the impact of unemployment – and why these additional features are critical to businesses that use them.
Accurately calculate how much unemployment tax you must pay. The Federal Unemployment Tax Act (FUTA) requires that most employers pay a federal tax that funds the federal unemployment benefits program. Though the 2017 FUTA tax rate is 6 percent on the first $7,000 per year of each employee’s wages, employers must determine which employees are subject to FUTA, and which are exempt.
For example, an employer who pays employees (that are not household employees or farm laborers) wages of $1,500 or more in any quarter of 2016 or 2017, or had employees for at least some part of a day for at least 20 different weeks in 2016 or 2017, may be subject to pay FUTA tax.
To add to the complexity, each state has its own unemployment tax to fund unemployment benefits. State rates vary in terms of how much of an employee's wages are subject to state unemployment tax, and whether the FUTA credit for state unemployment contributions applies. Employers may receive a credit of 5.4 percent when they file their Form 940, Employer's Annual Federal Unemployment Tax Return, to result in a net FUTA tax rate of 0.6 percent (6.0% - 5.4% = 0.6%).
If you're looking for help with this, find payroll tax services that automatically calculate how much you must pay based on the state in which each employee earns income to help ensure the business' unemployment insurance payments are accurately paid on both state and federal levels.
Stay current on the impact turnover can have on unemployment. The impact of unemployment isn't felt only by the employee; employers with high turnover may be subject to higher unemployment insurance tax rates. Generally, the more unemployment claims an employer's former staff generate, the more it must pay into the system.
Hiring the right employees for the right positions sounds relatively straightforward, but not all businesses can control fluctuations in demand, seasonality, the changing competitive landscape, or the impact on staffing needs. Once an employee has been on payroll for 30 days, an employer may be liable for paying into their potential unemployment benefits. A payroll service can help HR departments stay current on crucial staffing timelines. This includes the ability to proactively take steps to avoid unnecessary unemployment costs if it's clear an employee isn't a good fit within the first month of hire, or in need of formal corrective action and work improvement plans (which may be required before an employee can be terminated for performance issues).
Track claims to detect inaccuracies. HR departments may manually manage paperwork and insurance statements related to unemployment claims to monitor and verify the information on them. But this approach can become burdensome when unemployment insurance claims increase or fluctuate.
Modern payroll services, however, include features that empower HR departments to efficiently monitor and track claims paperwork, including the ability to run reports regarding in-depth benefit charge audits and annual claim activity. Such capabilities help ensure the impact of unemployment doesn't inaccurately impact unemployment insurance premiums, and enable HR departments to confirm if they are being incorrectly charged for ex-employees whose claims were determined to be invalid.
Respond promptly to invalid claims. Modern payroll services are designed to help businesses promptly respond to claims and appeal processing to help avoid fines and retain rights to appeal. If a business doesn't believe information about a claim is valid and wants to fight an employee's claim, some payroll services even include the option to hire expert representatives to consult on the appeals process, manage the administrative aspects of the dispute, and even attend the required hearings associated with the appeal.
Unemployment taxes add complexity to administrative processes, but they don’t have to be a burden your organization must handle manually. Modern payroll solutions have evolved to accommodate the many needs that come with managing an organization's responsibilities relative to unemployment. Take advantage of the features available to help ensure that the unemployment insurance payments you do make are accurate.