Employers can save $l,000's in unemployment taxes simply by using a
number of good management techniques to control their "benefit
ratio."
There are 20 state unemployment tax rates and employers pay taxes based
on the amount of unemployment benefits paid to their former workers in the
first four of the past 5 years, divided by the employers total taxable payroll. This calculation is called your “benefit
ratio.” Tax rates range between 0.62%
and 5.42% of the first $29,700 (the taxable wage base for 2003) of each
employee's earnings. A business in the lowest rating of 0.62% will be paying
$1420 1ess per employee per year in state unemployment taxes than a business in
the highest tax rate. Unemployment
claims less than 4-1/2 years old will likely increase your unemployment taxes
in the current year. The only way to reduce your unemployment taxes in the
future is to begin now to reduce the cost of the unemployment benefit claims
charged to your benefit ratio. You'll enjoy the savings in future years. But,
if you fail to reduce your unemployment benefit claims now, your unemployment
costs will increase dramatically in future years. The following are several
techniques small businesses should use to reduce their "benefit
ratio" factor and save money.
COMPLETE AND ACCURATE PERSONNEL RECORDS
Small businesses often fail to keep complete and accurate employment
records on their employees. Without good employment records you cannot defend
yourself in disputes about length of employment, employee conduct, the
employee's decision to voluntarily quit, etc. Good personnel records include
each employee's application, time cards or other proof of hours worked, memos
about verbal warnings, copies of any written warnings with a signed receipt
showing that the employee received a copy of the written warning, a signed
receipt that the employee received a copy of the employer's Policy Guide, written
notice by the employee of their wish to --voluntarily-quit, and an exit
interview.
Exit Interview
An exit interview is important and should be
conducted somewhat informally in most cases, especially if a worker is
voluntarily quitting. It is best to
conduct this just before giving the departing employee his/her final
paycheck. Simply explain that you need
to confirm certain information to ensure that they get their tax records from
you at the end of the year and to be able to forward any correspondence, etc.
that may be necessary. The exit
interview should be a sheet of paper with at least the following items on it:
·
Employee’s
name
·
Employee’s
mailing address
·
Employee’s
phone number
·
Alternate
contact information for the employee (relative, etc.)
·
Employee’s
position at your company
·
Dates
of employment – first day of work – last day of work
·
Work
status – full time or part time (indicate approximate number of hours of work
per week if part-time)
·
Reason
for leaving your firm
·
A
place for the employee to sign the form
IBA recommends you complete the form for the
employee including the “reason for leaving your firm” prior to having the exit
interview to help speed the process along, plus have a blank form available
just in case major corrections to the information are needed. Review the form with the employee, fill in
any blanks you don’t have filled in, and ask the employee to sign the form to
confirm the information is correct.
This is important because after an employee leaves a company, sometimes
the employee gives a far different reason for leaving your firm than you
understood when they left. This signed
exit interview form provides you proof of what the employee said was the basis
of leaving your company. If the reason
for leaving was misconduct, be prepared for a wide variety of reactions in the
exit interview and be sure to have at least one other person with you during
the exit interview.
HOURS OF EMPLOYMENT
Hours of employment are the basis used by the
Employment Security Department to determine when a person is eligible for
unemployment benefits. The Department will "estimate" the number of
hours you employed an individual employee if you fail to report the employee's
hours. Use of a time clock or other written documentation signed by the employee
is strongly recommended. When an employee works for more than one employer in
the year they qualify for benefits, each employer will be charged a portion of
the unemployment benefit claim for that employee based on the portion of total
hours the employee worked for each employer.
PAY TAXES ON TIME
Employers who are delinquent with respect to
quarterly tax and wage reports and/ or contributions, interest or penalties of
$100 or more, on September 30th of any year, are assigned a delinquent tax rate
of 5.42% for the following calendar year, except those who properly maintain an
agency approved deferred payment contract.
DISPUTE UNJUSTIFIED CLAIMS
An employer has 10 days after receiving a "Notice to
Employer" to complete this form, explaining the reasons the employee is
not working for the employer or, to attend the Department's benefit eligibility
interview. If the employer fails to complete this form, the employer cannot
participate in the benefit eligibility interview and the Department will make the
decision on benefit eligibility without the employer's statement. An employer
must appeal a decision to award or deny benefits, in writing, within 10 days of
receiving notice of that decision. Failure to make a timely appeal will
prohibit future appeals. In any appeals case, the employer must have accurate
and complete records to prove its case. Without accurate records, the employer
will generally not prevail.
The following are some
reasons for disqualification from employment benefits:
EMPLOYEES WHO VOLUNTARILY QUIT It is strongly recommended that any employee
" voluntarily quits, be required to notify the employer of their decision
to voluntarily quit, in writing and signed by the employee. The exit interview
is to show that the employee did not quit for an employer caused reason.
DISCHARGE OF EMPLOYEES FOR MISCONDUCT Unemployment benefits may be denied to an employee
who has been discharged by the employer because of employee misconduct.
Generally this requires clear and gross misconduct. For example, an employee
who refuses to comply with state required safety practices may be denied
unemployment benefits if discharged by the employer. For an employee to be
denied benefits, the employer must show clear proof of the misconduct. Memos
about verbal warnings, copies of written warnings, and if the company received
a state safety citation as per the above example, because of the misconduct of
the employee, this should be included as part of the record. Failure to keep
these types of records will generally allow an employee discharged for
misconduct, to collect unemployment benefits.
OTHER REASONS FOR DISQUALIFICATION Failure to actively search for, apply for, or
accept available work, and failure to meet availability or reporting
requirements.
BASE YEAR EMPLOYER NOTICE -HOW TO GET RATE RELIEF
Even if certain benefit payments are made to former employees you can
stop those benefit charges from being charged to your employer's Unemployment
Insurance experience rating account. A base year employer will not be charged
for benefits paid to employees if:
(1) The benefit charges are the result of payments made to an employee
who voluntarily quit work for reasons not attributable to the employer. An employee who voluntarily quits your firm
can re-qualify to collect unemployment benefits. YOU must request non-charging of those benefits in writing as
described below to stop those benefit costs from being charged against your
firms experience rating.
(2) The employee is charged for work-related misconduct. An employee who left due to misconduct your
firm can re-qualify to collect unemployment benefits. YOU must request non-charging of those benefits in writing as
described below to stop those benefit costs from being charged against your
firms experience rating.
(3) A catastrophic occurrence, such as fire, flood, or other natural
disaster, closes or severely curtails the operations of an employer's business
( 4) The employer continues to employ an individual on a regular,
permanent, part-time basis who applied for benefits on or after July 28, 1991
and who worked for the employer during his or her base year.
IMPORTANT The employer must request relief in writing from such
charges within 30 days of the mailing date of the initial unemployment claim
notice (Notice to Base Year Employer), stating the date and reason for the most
recent separation. The Department will
not charge those benefits paid to that employee if they can verify the accuracy
of your information.
CORPORATE OFFICER EXEMPTION
Services performed by corporate officers are exempt from coverage for
unemployment benefits UNLESS: (1) The employer is a political subdivision, or
is in a nonprofit class exempt under Section 501(c)(3) of the Internal Revenue
Code; or (2) the employer has failed to notify each of its corporate officers
in writing * that they are not eligible for unemployment benefits; or (3) the
employer has elected to voluntarily cover its corporate officers for
unemployment benefits. If coverage is desired, all officers must be covered and
a Voluntary Election Coverage Form (EMS 5203) requesting coverage must be
completed and signed by someone authorized to bind the corporation and be
approved by the Department. The
written notice must contain the name(s) of the officer(s) to who directed and
the effective date of the exemption. The notice(s) must be signed by such
officer(s) indicating acknowledgement of receipt. A copy of such
notification(s) must be kept oil file by the corporation and must be available
for review by any agency official upon request. Employers must still pay federal unemployment taxes of 6.2% of
the first $7,000 of compensation on corporate officers exempted from state
coverage.
Rehire Former Employees Collecting Unemployment Benefits. If they can do the job,
offer 1em a job before you hire an equivalent individual who has never worked
for you. It will reduce the benefit charges to your account.
Use Temporary Help Agencies. If you have a job you know will only last a
certain length of me, you should consider using a person from a temporary help
agency to fill that job. That way, when
the job is over your business will not be charged with any unemployment
benefits.
BUY DOWN YOUR TAX RATE
Employers who have an increase of 6 or more
unemployment tax rates from one year to the next may "buy down" their
future unemployment tax rate by making "voluntary
contributions". This legislation IBA developed and successfully got
put into law in 1996.
Here is an example of how this law works:
Small Business A lays off an employee in 2001.
That employee qualifies for and collects $4500 in unemployment benefits in
2001. In November 2002, Small Business A receives their 2003 unemployment
tax notice and sees their unemployment tax rate will increase from the current level
of .5% to 3.5%. This is an increase of 16 rate classes from Small
Business A's 2002 unemployment tax rate, to its new 2003 rate.
Small Business A then calculates the cost of this
higher tax rate as follow:
·
Find
the difference between your old tax rate and your new tax rate:
3.5% - 0.5% = 3%
·
Multiply
the difference by your total taxable payroll (in 2003 the first $29,700 of each
employee’s earnings) for the following years:
Year 1 - $125,000 x 3% = $3750
Year 2 - $150,000 x 3% = $4500
Year 3 - $150,000 x 3% = $4500
Year 4 - $175,000 x 3% = $5250
Total $18,000
But, Small Business A can avoid this additional $18,000 in additional
unemployment taxes over 4 years by using the state's "voluntary
contributions" law. To use this law, Small Business A can make a
"voluntary contribution" of up to the full amount of the $4500
unemployment claim charged against their account, plus a 10% surcharge, to
"buy-down" this claim and reduce their future tax rates. If
Small Business A were to make a "voluntary contribution" of $4950
($4500 + the 10% surcharge ($450)), they would remain in the same unemployment
tax rate bracket they were in 2002 - and NOT pay the $18,000 in additional
unemployment taxes.
Small Business A may not want to "buy-down" the entire $4500 claim,
but may want to buy down $2500 of the claim by making a "voluntary
contribution" of $2750 ($2500 + 10% surcharge). Small Business
A's tax rate would be decreased some, maybe to 2% instead of 3.5% (tax rates
used here are only for illustration and not examples of an actual case) and
instead of Small Business A paying $12,000 in additional state unemployment
taxes over the next 4 years, Small Business A would pay $8,000 in additional
state unemployment taxes over the next 4 years, saving $10,000 in additional
taxes for a $2750 "voluntary contribution" expenditure.
Firms eligible for voluntary contributions should receive a notice from the WA
Employment Security Department mid November prior to the year their taxes will
be increased. Making a "voluntary contribution" is
optional. An employer choosing to make a "voluntary
contribution" must have the voluntary contribution received by the WA
Employment Security Department by February 15th.