How to Control Unemployment Insurance Costs

Your company's unemployment insurance costs can weigh down your budget. The rate your business pays can vary. In fact, just one unemployment claim can seriously increase your unemployment insurance tax rate.

The good news is that there are steps employers can take to control the unemployment insurance costs. The most comprehensive cost control mechanism is to work with a best-in-class Professional Employer Organization (PEO).

How is your state's unemployment insurance rate calculated?

The Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA) are laws that require businesses to pay into unemployment programs. FUTA is used to pay for unemployment insurance programs overseen by the federal government. SUTA, on the other hand, is collected and distributed solely by your state government.

Like other payroll taxes, your business pays unemployment taxes on a percentage basis. States calculate this percentage on each employee's earnings, up to a certain amount. Your state will assign you a percentage based on the industry your company operates in and the amount of former employees who have filed unemployment claims. So, the more employees you have who file claims, the higher your SUTA rate becomes.

Fortunately, your business has options to combat increases. Partnering with a PEO is one such option where your business can see more control over your unemployment insurance costs.

What is a Professional Employer Organization?

A PEO is an HR outsourcing company that helps your business achieve your goals and lets your employees focus on your core business needs. Using a PEO, your company can see substantial cost savings in many areas, including unemployment insurance.

Through your PEO partnership, any future unemployment claims filed by your former employees will be made against the PEO's SUTA account, not yours. The result for your business is more control over your unemployment insurance costs and a lower likelihood of drastic increases.

How can a PEO control unemployment insurance costs?

Containing unemployment insurance costs is one of the services offered by PEOs. There are several ways in which your chosen PEO can help your business control those costs.

Object to invalid or suspect claims

When a former employee files an unemployment claim, your company will be contacted. You may need to provide additional documentation, and you will need to review the claim for accuracy. This is time you could be spending on your core business needs.

Invalid unemployment claims may include:

• A former employee who quit
• A former employee was fired for misconduct
• The former employee did not make enough money to qualify

When you work with a PEO, they will handle your responses and objections to unemployment claims. This can reduce the number of claims that are ruled as legitimate.

Guide through documentation procedures

Many small businesses fail to properly document. That can be a problem for an unemployment claim defense. If you have not documented the reason for terminating the employee or that they resigned, it could become your word against theirs. That could mean you lose the claim and have your SUTA rates increase, even when they shouldn't.

Your PEO can help you keep proper documentation. With a clear paper trail, your PEO provides you the support to show that your former employee is no longer employed and is not entitled to unemployment benefits. Taking the time to properly document can save you headaches and hundreds or thousands of dollars.

Attend hearings on behalf of your company

When your company wants to challenge the validity of an unemployment claim, you may need to attend a hearing. This takes away valuable time from you or your staff, time that would be better spent on your core business needs.

Instead, your PEO will prepare for and attend this hearing on your behalf. An HR expert will defend your company and contest the former employee's unemployment claim at the hearing, so you do not need to spend time dealing with this issue.

Reduce your SUTA rate

Your company's SUTA rate is determined by your unemployment claims history. When you have many former employees file unemployment claims, your SUTA rates go up.

Joining a PEO gives you access to SUTA rates that reflect the PEO's experience instead of your company's history of unemployment claims. This can reduce your overall unemployment insurance costs. 

Partner with a PEO to Control Your Unemployment Insurance Costs

Unemployment claims are time-consuming and require a keen eye for detail. Responding to every unemployment claim your company gets can lead to exhaustion and errors. This could result in invalid unemployment claims getting approved, costing your business money.

By partnering with a best-in-class PEO, you can get help from HR experts who can actively work to control your unemployment costs. Keeping your SUTA rates low and unemployment claims infrequent can lead to a greater room in your company's budget to spend on growing your business and focusing on your core business needs. 

Let a PEO help you control your unemployment costs so you can put your money back into growing your business instead of fighting claims.