Unemployment 101: A Guide for Employers on Managing Unemployment Claims

While unemployment claims can be daunting and complicated for employers to navigate, it’s important to manage them properly. So you should know the basics of how unemployment claims are filed and calculated—and your responsibilities when that happens.

Understanding Unemployment Claims

Workers can file unemployment claims when they lose their jobs through no fault of their own. (They generally have to meet other eligibility requirements as well.) Unemployment insurance program guidelines are established by federal law. However, the program is a joint state-federal effort, with each state having its own guidelines for filing and managing claims.

When an employee files an unemployment claim, the state typically contacts the employer to verify the reason for separation and the employee’s earnings. The state uses this information to determine whether the former employee is eligible for unemployment benefits. If so, the person gets a weekly payment—called a benefit—that is subject to federal and state income taxes. (Workers can choose to have taxes withheld from their weekly benefit payments or pay them at the end of the year.)

Unemployment claim benefits are paid by the state using funds collected from employers as unemployment taxes. Every employer has an account with their state that tracks the amount of unemployment tax they’ve paid. When a claim is paid to a former employee, the amount of the claim is assigned to the account. This amount is called a benefit charge, and it’s part of how the state ensures that the claim’s benefits are accurate.

A worker’s benefits are calculated based on several factors, including their earnings history and the state’s unemployment insurance program guidelines. The exact formula used can vary by state and is quite detailed, but generally it involves the following steps:

• Establishing a base period of the worker’s most recent employment history
• Determining the wages they earned during that period
• Using that information to calculate a weekly benefit they’re eligible to receive during their benefit year

Note that even if you don’t terminate an employee, you could be brought in to the claims process. For example, an employee willingly leaves their job at your company to take another position. Six months later, they’re let go from that job and file an unemployment claim. The state will contact you (as an employer within the former employee’s base period) to determine that worker’s length of employment, earnings and reason for separation.

The Importance of Accurate Information

Your initial response to an unemployment claim sets the stage for a smooth, fraud-free claim process:

• It minimizes the risk of legal action. If an employee is denied benefits due to inaccurate information you provide, they could take legal action against you. This can be costly, time consuming and damaging to your reputation.
• It prevents fraud. According to the U.S. Department of Labor, 21.52% of unemployment payments paid in 2022 were paid to an ineligible or incorrect recipient (or they received the wrong amount). Providing detailed information about the employee’s work history, including the reason for separation, can help identify fraudulent claims.
• It prevents delays in the claims process. Inaccurate or incomplete information can hold up claims. This results in the employee being without income for longer than necessary, as well as increased administrative costs for you and for the state.

Managing Unemployment Claims

You can take several steps to streamline the process of managing unemployment claims and minimize the risk of improper payments.

Keep accurate records.

Maintain detailed and updated records of each worker’s employment history, including date of hire, salary information and reasons for separation. This information will be used to verify unemployment claims.

Respond to unemployment claims promptly.

Be timely in your response to any requests from the unemployment office, and provide accurate information to avoid delays in the claims process. Failure to respond to requests for information can result in improper payments and increased costs for you.

Contest unemployment claims when appropriate.

You have the right to contest an unemployment claim if you believe the employee filing it was terminated for cause (or is otherwise not eligible for benefits). Contesting claims can be a complex and time-consuming process, but it’s an important step in minimizing improper payments.

Participate in hearings when necessary.

If an unemployment claim is contested, the state will typically hold a hearing to review the case. Be ready to participate in these hearings and provide evidence to support your position. Failure to attend can result in denial of your petition and an improper payment being made to the former employee.

Monitor benefit charges.

Track benefit charges as they’re made to your account to ensure they reflect the actual benefits paid to former employees. Benefit charges can be appealed if they are incorrect or if you believe the employee was not eligible for benefits.

By understanding how the unemployment claims system works, you’ll be better prepared if you receive notice of a claim—or need to contest one. You can also consult with an HR professional to make sure your recordkeeping and other practices are sound. Doing so helps ensure the unemployment system works effectively for both employees and employers.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.