FOUR WAYS TO MINIMIZE UNEMPLOYMENT COSTS

In these days of rampant unemployment, employees are not the only ones who are suffering. Employers also have a burden to bear in the form of rising unemployment costs.

How it works: Under the Federal Unemployment Tax Act (FUTA), employers are charged 6.2% of the first $7,000 of every worker’s wages, although a state unemployment tax credit of 5.4% may reduce the federal rate to 0.8%. This works out to a maximum FUTA tax of $56 per employee (0.8% of $7,000) on an annual basis. One critical factor in maintaining the 5.4% credit under state unemployment systems is to demonstrate stability.

In effect, employers with more unemployment benefit claims are generally required to pay more in state unemployment taxes. Thus, there is an extra financial incentive for keeping claims to a minimum. For instance, if an employee seeks unemployment benefits, the employer may be able to demonstrate that the employee quit voluntarily or that he or she was terminated for willful misconduct.

Short of using these two defenses, or some variation, the key to reducing unemployment costs is to avoid having claims filed in the first place. Here are four practical suggestions:

1. Hire with discretion. If an employee will be required to work unusual shifts, weekends and holidays, present this information at the outset. Even better, the employer can put such notice in a prominent place on the employment application and have the new hire sign it. In that case, if the employee leaves the job due to the work schedule, the departure should be considered voluntary and unemployment benefits may not be triggered.

2. Fire with discretion. If employment is terminated due to misconduct, such as insubordination or work rule violations, explain in writing the reasons for the dismissal. Copies of performance evaluation forms showing prior warnings should be given to the departing employee, along with a final statement showing no improvement in the deficient area.

3. Conduct an exit interview. When an employee leaves voluntarily, find out the reason. Have multiple employees interview the departing employee and retain notes from each meeting. Ask for a formal letter of resignation. This may defuse a claim for unemployment benefits. It may also alert you to a condition you want to correct to head off more departures.

4. Challenge questionable claims. This could signal the launch of a wrongful discharge lawsuit, so prepare documentation showing that the claim is groundless. You may want to involve your attorney from the outset.

By following these basic suggestions, employers may able to keep their merit rating high and their costs low. Take a proactive stance in this area.