SCORE

For years and years I have heard people say, “I have paid unemployment for years and deserve it.” As much as they may think that statement is right it is not true. Unemployment is a tax and is paid only by employers as a percentage of total payroll. The employee does not contribute. 

What’s interesting about the unemployment tax is that it’s a tax variable based on each employer’s  “experience rating” with the state. In Arizona, you can pay as little as .05% and as much as 7.5% of your total payroll in tax. The rating is determined by how much unemployment the state has to paid your ex-employees. Working to drive down the “experience rating” is the secret to reducing the tax. If you want to reduce the amount you pay, you can do several things that will have a big effect on the tax.

Some Actions You can Take are to Lower the High Cost of Unemployement Tax:

First, the states send out regular reports and tax bills.

Those reports and bills are wrong a national average of 17% of the time. You must review these reports in detail to see if:

       1. You are being billed for an employee who never worked for you,

       2. Employees who have been paid for more weeks than the law allows,

       3. Employees who were fired for gross misconduct, etc., and

      4.  Part-time employees.

These reports are critical and should always be checked carefully. 

Second, if an employee is not performing up to expectations, take all the proper steps to discharge them. Having to fire an employee for not performing is crucial for your business.

Meet with the employee and warn them in writing. The warning must include a performance improvement plan and clearly state that the employee may be terminated if the improvement does not happen. Do not take the easy way out and say they are being “laid off”. Those words virtually guarantee they will get unemployment and you will have your taxes raised to pay for it.

Third, in this current COVID-19 environment...

If you have employees laid off temporarily, when you ask them to return and they refuse, you need to record that as a job refusal.

Fourth, if at all possible, all resigning employees should be asked to give a written resignation. 

If that does not happen, make sure to put a note in their file explaining the circumstances of the employee leaving. That helps to keep the “story” from changing later. 

Fifth, document, document, document.

Never get into a “he said, she said” situation”. The state most always favors the employee. It is the employer who has the burden of proof if they don’t want to pay out the unemployment. When an employee files you will be given a chance to answer. Provide a prompt response to the letter of  request and include copies of any documents pertaining to that employee’s dismissal. If either party appeals, there will be a phone hearing with a judge.  Be clear and concise with your answers and provide only facts and not hearsay.

And last, it is just really good policy to have a witness in all meetings where an employee is being discharged. Again, it helps with the “story” later. 

There is a lot more to it than this. If you have unemployment questions I would be glad to help. Or click here to schedule a free mentoring session with a SCORE Mentor. 

About the Author(s)

 Stephen  Engelhardt

Experienced Mentor with a demonstrated history of working in the financial industry. Skilled in Business Development, Sales Management, Public Speaking, Business Analysis, and Financial Analysis. Strong professional graduated from University of Texas, Arlington 

Certified SCORE Mentor, Instructor, SCORE Greater Phoenix
How You Can Manage the High Cost of Unemployment Tax in your Business