UI claims

UI Claims: Are There Hidden Costs Associated?

No matter the reason, having to let go of an employee is never easy. And as challenging as the situation may already be for everyone, employers must also consider the full ramifications that terminating someone has on the business.

Unemployment claims are a part of any business’s responsibilities as they terminate employees. And, when the time comes, you want to be ready. As such, it is crucial that employers understand the costs associated with unemployment claims and how they impact the bottom line.

In this article, we’re going to give you some of the things you need to be careful of with unemployment claims and how to avoid potential hidden costs when it comes to unemployment insurance (UI).

UI Claims Are the Employer’s Responsibility

One of the biggest misconceptions about unemployment claims is that they are not the responsibility of the business. It’s a common mistake to believe that when you’re paying your unemployment insurance that it acts like Medicare or Social Security. Many business owners think that the funds are going to come out of an already accrued amount, like drawing from an account of some sort. That is not the case, and the costs can actually exceed the amount of the claim by a great deal.

Unemployment is funded completely by employers in almost every situation. Only Pennsylvania, New Jersey, and Alaska tax employees for their unemployment insurance. Apart from those three, unemployment occurs on a state and federal level where it is taxed and funded.

Here are some things to keep in mind:

  • The Federal Unemployment Tax Act (FUTA) is a flat rate for the first $7,000 you pay an employee.
  • FUTA is currently 6% (though many states receive a 5.4% credit effectively making it 0.6%).
  • There’s nothing you can do as a business to change this rate.
  • If a state doesn’t have the funds in their unemployment insurance funds, this money serves to help with claim payouts.
  • States need to repay anything used in this fashion or their employer tax rates get raised.
  • The State Unemployment Tax Act (SUTA) varies much more widely with employers paying different rates on taxable employee earnings.
  • States often have a unique and specific way that they assess and calculate what companies pay.

There’s much more to it than that; but this is a general primer so that you can understand that you are in fact very likely going to be responsible for paying any unemployment insurance claims. This is the first hidden cost that most businesses face. Even though it’s not technically hidden, it’s largely misunderstood and surprises many business owners.

Hidden Costs: Increased Tax Rates

While many factors come into play when it comes to unemployment insurance claims, one of the most detrimental hidden costs comes in the form of increased taxes over time. Each unemployment claim that’s awarded actually increases UI tax rates and can do so for up to three years. When your company gets hit with a UI claim, the hidden fee might not come immediately. But, you should be on the lookout down the line.

Quentelle Can Help

Don’t risk facing these issues of unemployment insurance alone; it can end up costing you a lot of money in the long run.

We’re experts at unemployment insurance and have the software to help you navigate UI claims seamlessly. Let’s schedule a demo today.

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