When Mary White opened her unemployment insurance statement in August and saw that her account had been docked for a claim from an employee who had quit more than a year before, she was baffled.þþþMs. White, 51, the founder of BnBFinder.com, a bed-and-breakfast search engine and booking site, hired the employee after the employee’s previous company, a Web site that matched aspiring authors with ghostwriters, went out of business. But then the ghostwriting site’s owner resurrected his business and hired the employee back. “And then, lo and behold, he went out of business again,” Ms. White said.þþThat left the employee unemployed and made Ms. White’s company responsible for $1,956 in unemployment claims. That put Ms. White’s account in deficit and threatened to drive up her unemployment insurance tax rate — even though the former employee had left her company voluntarily.þþ“You sit here afraid to hire anyone else,” Ms. White said. “It gives me pause and goes into my decisions. As a small business, I’m paying attention to what brand of coffee I buy for the office.”þþWith the economy stalled and the official unemployment rate hovering stubbornly around 9 percent, many small businesses are struggling to understand how unemployment insurance premiums are determined. The system is anything but simple and it varies by state, but it can be mastered and managed. Above all, owners should know that the more unemployment claims a company generates, the more it has to pay into the system.þþThe federal government charges employers a base rate of 0.6 percent of the first $7,000 of each employee’s wages each year. That federal money is used to cover the administrative costs for state unemployment programs; a loan program for states that do not have enough in their unemployment trust funds to pay claims; and extended unemployment benefits during economic downturns. When a state does not repay its loans — states now owe the federal government about $39 billion — the federal government raises the employer tax rate in annual increments of 0.3 percentage points. Right now, Michigan employers are facing a 0.9 percent surcharge.þþWhile employers have no control over federal unemployment insurance rates, they can mitigate their state costs. In general, the states charge an unemployment insurance tax on part of each employee’s income based on the company’s unemployment history. Most states calculate a business’s tax rate each year based on a formula that considers payroll size, the amount the company has paid into the system and the amount of unemployment benefits former employees have collected.þþThat means a worker who collects unemployment can push his former employer (or multiple former employers, when there are several over the state’s base period) into a higher unemployment insurance tax bracket, often for several years.þþA typical unemployment claim against a business increases the amount that business pays in state premiums in a range of $4,000 to $7,000 over a three-year period, said David Prosnitz, owner of Personnel Planners, a company based in Chicago that fights 15,000 unemployment claims a year for its 1,000 business clients. But it can be much worse.þþHere is how the math works: Say you have a 10-employee business in Illinois. If you had not had any unemployment charges during the previous three years, the state unemployment insurance rate would be 0.7 percent — the Illinois minimum — of the first $12,740 of each employee’s wages, costing your business about $900 per year. If a laid-off employee then collected $10,000 against your account, your rate would go up to almost 5 percent, increasing what you pay to more than $6,000 a year for three years and costing your business more than $16,000 in increased unemployment insurance payments over that period — more than the employee would collect.þþHow can an owner manage the process?þþ“Hiring the right people is the first step in managing unemployment costs,” said David Blaine, a Bakersfield, Calif., employment lawyer with Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball. But if you make a mistake, act quickly. In Illinois and Virginia, for example, an employer becomes liable for unemployment benefits after 30 working days. It is important to know the period in your state and to be aware of the target date for each employee you hire.þþ“If you recognize you’ve made a bad hire,” said Ronald Adler, chief executive of Laurdan Associates, a human resources company in Potomac, Md., “the sooner you fire them, the better.”þþAfter an employee starts, he or she must be treated according to the employee manual. Any problems should be handled within a system of well-documented progressive discipline: warnings, suspensions, termination (theft and violence should lead to immediate termination). “Unemployment boards want to see that people had a chance to change,” Mr. Blaine said.þþEach warning should be written to show that the employee broke a rule he knew about, not that he performed poorly. An employee fired for misconduct can be denied unemployment benefits; one fired for incompetence can collect.þþAnother way to handle poor employees is to persuade them to quit by offering a severance package in exchange for a written agreement to forgo unemployment. Also, workers who quit voluntarily should be asked to give written notice of the reason for their departure to avoid a later claim.þþLisa Faast, owner of Faast Pharmacy in Bakersfield, Calif., and a client of Mr. Blaine, learned the importance of documentation the hard way. In 2009, she discharged an employee who had been on the job three weeks, after repeated verbal warnings for walking off the premises and for being rude to customers and colleagues.þþ“In the hearing, I had my manager with me and we corroborated everything the other said, but they ruled in the employee’s favor,” said Dr. Faast, 32, whose five-year-old pharmacy had revenue of $5.7 million in 2010. “Now, every discussion we have with an employee is written down, and we and the employee sign. It can get kind of ridiculous. But since we’ve started that, we’ve won every case.”þþThe many levels of appeals can eat up time, and small businesses often lose claims because they do not have the manpower or endurance to keep up with the paperwork and hearings.þþSome businesses hire specialists to monitor their claims and help fight those they want contested.þþ“When I first came into this business 35 years ago, I thought I was smart enough and could do it all myself,” said Norman Dinkel, owner of Dinkel’s Bakery in Chicago and a client of Mr. Prosnitz’s company, Personnel Planners. “I went to a few unemployment claims hearings, and I realized quite quickly it was a game, and you have to play it on a regular basis to have a chance to win every once in a while.”þþMr. Prosnitz charges a business with 100 employees about $1,000 a year, plus $125 for each hearing he handles.þþFor those who go it alone, the most important thing is to return all required forms on time and to attend every hearing, bringing written documentation. Failure to do so will lead to an automatic win for the former employee.þþFinally, small-business owners should monitor their insurance statements to catch errors and to verify that they are not being charged for ex-employees who have lost claims.þþ“A lot of errors are made by state departments of labor, so it’s important to audit,” said Martin Taylor, vice president for human resource services at Human Capital Initiative, an Atlanta management consulting firm. Government numbers show that in 2010, 11.2 percent of unemployment insurance outlays were done improperly.
Source: NY Times
