Unemployment Insurance

What Is Unemployment Insurance?

When the U.S. implemented the Social Security Act of 1935 during the Great Depression, it was decided as a country that people who lost work to no fault of their own would receive some economic relief. Unemployment insurance laws are currently governed and controlled by individual states. Some states already offered it. Wisconsin was the first state, in 1932, but Utah had unemployment insurance laws before 1935 as well. So did California, Massachusetts, New Hampshire, New York, and Washington state. People within the U.S. at the time were deeply conscious of a need to help others, because the entire country was struggling with the economy. The 1935 Act was signed by President Franklin D. Roosevelt; the U.S. Supreme Court decided it was constitutional in 1937.

Today, unemployment insurance protection is still a very meaningful program for both employers and employees alike, especially in times of economic recession — the Great Recession immediately comes to mind — as well as mergers and reductions in force. Its main function is to provide temporary income protection. However, it is not meant as a way to support anyone who isn’t willing to work. If an employee quits a job voluntarily and without good cause, is fired for misconduct, or refuses to apply for or accept suitable work, that person may be disqualified from receiving benefits.

Key Terminology

This is not to say that a person can’t quit. People can quit for a good cause, or they can quit for a reason that is “not contrary to equity and good conscience,” and still get unemployment benefits. One example of a good cause is defined as being asked to do something that is either illegal or unsuitable. Equity and good conscience is defined as a situation where the person claiming unemployment was acting in a “logical, sensible, or practical” way by quitting. The reason for quitting might not be enough to be considered a good cause, but if it would be “unreasonably harsh” or unfair to deny benefits, and the former employee is still interested in working somewhere else, then that employee might very well be entitled to unemployment benefits.

The idea behind finding out why someone left a job before making a decision about unemployment benefits is to prevent people from getting benefits when they quit just because they didn’t want to work at a specific company anymore.

There are other protections for the employer as well. In Utah, someone who wants to apply for unemployment benefits has to have worked recently for at least a year, and the work has to be recent; for example, the year has to be within four of the last five calendar quarters. In other words, people can’t get a job for just a short time and then expect to qualify for unemployment benefits on that basis.

Who Pays For Unemployment Insurance?

Contrary to what most people think, unemployment insurance is not paid for, or provided by, the federal or state government. Instead, indiUnemployment Insurance vidual employers pay it on the basis of the company’s experience rating (EMOD), which is determined by the number of unemployment claims paid by the state on behalf of a particular employer during a given period of time. In some ways it is like other insurance. If a company has higher unemployment claims, it pays a higher tax rate. To facilitate the program, the government uses Federal Unemployment Tax Act (FUTA) & State Unemployment Tax Act (SUTA).

What to do about fraud

Although unemployment is a vital benefit for employers and employees alike, fraudulent claims have a negative effect on employers and the country as a whole. Suppose an employee is fraudulently collecting unemployment. Perhaps the employee actually quit voluntarily, or was fired for cause, even though the employer could not provide proof of misconduct. An employee who fraudulently collects unemployment increases an employer’s SUTA rate unnecessarily, increases the country’s unemployment rate and uses government resources that should have been allocated somewhere else.

Preventing unemployment fraud is one excellent reason why companies should have a progressive discipline plan in place; the plan protects the employer, doesn’t waste government resources, and stabilizes the program for its intended purpose, which is helping workers who need it. It can also reduce an employer’s legal liability, because following the program, when done right, establishes that a former employee was treated fairly. Even in a state that has at-will employment, wrongful termination is still something every employer ought to avoid. Please review our article about progressive discipline for more information.

Processing claims

Another important factor in unemployment claims is properly managing and processing the claims. The more information you have as an employer, in terms of tracking written warnings, keeping accurate time cards and proactively responding to claims, the more easily you can manage your SUTA rate and ensure that it is accurate. The state will conduct unemployment audits to ensure employees haven’t been working for you and also receiving insurance benefits simultaneously. These audits have a simple format where the employer reports the number of hours worked by the employees. If an employer is too busy to maintain time records, then the employer can’t give those records to the state, and problems develop. Without accurate, timely records, it’s all too possible for an employee to be paid insurance benefits and wages at the same time.

In conclusion, unemployment insurance is a beneficial program for employers and employees when it is used correctly because it provides a welcome safety net. But with the effects of the recession still apparent in today’s business world, it’s more important than ever to be prepared to defend your business by implementing a progressive discipline policy for your workforce and by contesting fraudulent claims.

If you would like to find out what your turnover rate is, and gain a better understand of how unemployment is affecting your company, please contact the WTA HR Department.