What happens when a former employee files for unemployment
Medical practice owners are facing agonizingly difficult decisions about whether to let go or furlough staff amid the ongoing public health and economic crises stemming from the coronavirus pandemic.
Some of those practice owners have experience with this, having kept their businesses afloat through the Great Recession. However, others are facing an economic downturn for the first time as practice owners. Either way, it can be helpful to refresh your understanding of unemployment claims and how they affect your business.
How unemployment works for employers
Let’s start with a refresh on how unemployment works from an employer’s perspective.
Unemployment benefits are paid out to individuals who lose their jobs through circumstances beyond their control. Federal and state governments share responsibilities in managing unemployment insurance funds. Unemployment insurance benefits are funded by taxes at the federal and state level.
Who pays unemployment taxes?
Unemployment taxes are comprised of the Federal Unemployment Tax Act tax and State Unemployment Tax Act taxes. Generally, these are paid by employers. However, some states require employees to contribute a portion.
What is FUTA?
This is how the federal government collects unemployment funds. The FUTA tax rate is 6% of the first $7,000 paid to each employee annually. In addition to the tax, businesses must submit a Form 940 to the Internal Revenue Service each year.
What is SUTA?
Each state may collect unemployment funds via SUTA. States can determine that employees must contribute a share of SUTA. Depending on your location, SUTA may also be referred to as state unemployment insurance, SUI or reemployment tax.
Your SUTA obligation changes depending on the state in which your practice is located. Your geographic location may also determine whether your employees also contribute to state unemployment taxes.
What unemployment claims mean for your practice
Even if you plan to rehire employees before applying for a loan under the CARES Act, there’s a chance you’ve had some staff file unemployment claims. Or they may be planning to do so in the near future.
What does that mean for your practice?
When a former employee files an unemployment claim you’ll receive a “Notice of Unemployment Insurance Claim Filed” letter from your state. If your state determines your former employee is eligible for benefits, then the payments will be charged to your employer tax account. Consequently, your unemployment insurance tax rate may rise.
What happens when you accept an unemployment claim?
You shouldn’t contest legitimate unemployment claims. Anyway, chances are most practices will accept claims filed during the coronavirus crisis. Just in case, here are some legitimate reasons to receive unemployment benefits:
- The individual was let go due to financial duress.
- He or she was laid off as a result of a lack of work.
- The employee lost his or her job because of something you did wrong.
After you accept the claim your state will reach a decision on the employee’s eligibility for unemployment benefits. Once the judgment is finalized the state will send a determination letter to both your practice and your former employee. If the claim is denied the claimant has the right to appeal.
How to contest an unemployment claim
Most practices will be accepting unemployment claims during the COVID-19 emergency. However, you may have received a “Notice of Unemployment Insurance Claim Filed” for an illegitimate claim. What’s the next step?
First you should make sure it was an improper claim. Here’s what to look for:
- Did the employee quit for another job that fell through?
- Did the individual include false information in his or her claim form?
- Was the worker an independent contractor?
- Was the employee let go for misconduct?
If the answer to any of those questions is yes, then you have a legitimate reason to contest the claim.
Are furloughed employees eligible for unemployment benefits?
Although furloughed employees typically retain their benefits and have relatively seamless transitions back to work, they’re also eligible for unemployment benefits. You should not contest unemployment insurance claims filed by furloughed employees.
Contesting the unemployment claim
To contest an unemployment claim you will need to contact your state’s unemployment department with details regarding why the individual was let go; what his or her compensation was, the claimants' dates of employment and job title; and information about your practice.
You will also need to provide a thorough explanation of why you are contesting the claim. Make sure to include proof supporting your argument. The unemployment department may follow up for more information.
You should send this letter to your state’s unemployment department within the timeline specified on the “Notice of Unemployment Insurance Claim Filed.”
If you do not respond in a timely manner you may see your unemployment rate tax increase in addition to other penalties. When the state reaches a decision you and the former employee will each receive a determination letter. The claimant may appeal.
Can I apply for a CARES Act PPP Loan if I let staff go?
Paycheck Protection Program loans are available to a wide variety of small businesses under the CARES Act for small businesses. These loans are available to provide employers with 500-or-fewer employees relief and economic security amid the COVID-19 pandemic.
However, they’re only forgivable if recipients’ payroll headcount is not reduced and wages remain the same. Additionally, at least 75% of these loans must be directed toward payroll.
So what do you do if you furloughed or let go of some or all of your employees?
Luckily, businesses that rehire employees who were laid off before the loan period will be extended PPP loan forgiveness just like those that held onto staff.
For more on this coronavirus aid program read our post on PPP loans offered under the CARES Act.