Do Not Ignore Unemployment Claims Management if You
Want to Improve Bottom Line Results and Recruitment Outcomes.
Today’s installment takes a look at two important factors you should consider when determining the level of effort to direct at unemployment insurance (UI) claims administration: direct costs and reputational effects. Although reputation is more difficult to tag with a dollar figure, the argument is compelling and those at the front lines of recruitment and employment termination have seen the problem unfold before their very eyes. Finally, we will discuss the rule of law that is at the heart of how the Texas Workforce Commission and similar agencies in other states make UI claim determinations. With that information, we can look at strategies for effectively challenging UI claims in tomorrow’s post.
First, Consider the Numbers:
Financial numbers are the easiest to understand and appreciate. In Texas, a new employer pays either the average rate of tax on payroll for other employers in the same type of industry or 2.7%, whichever is greater. Your initial payroll tax rate can go up or down each year based on how many claims were paid and how much they cost. The average rate in 2012 was 1.82%. The maximum was 7.35%. So, for a company with an annual payroll of only $1,000,000, the average and maximum UI tax amounts would be $18,200 and $73,500, respectively. Or, in other words, the cost is $10,000 per $1,000,000 in payroll per 1% of taxation.
The difference between being at the top or at average taxation for $1,000,000 in payroll represents the payroll for one or two more employees or at least one new company vehicle and its insurance for a year. Put another way, the tax penalty for failing to manage or inadequately manage claims is substantial. But, even if the direct costs through payroll taxes do not make you think twice, consider the costs associated with having a reputation for being soft on UI claim management.
Second, Consider Your Reputation
The reputation of a business or a brand is considered an emerging area in academic circles. Even so, people in business understand the importance of reputation without drilling down to its barest essentials, as science apparently intends to do in the coming decades. Think about the things that make up a person’s professional reputation: whatever you came up with probably also makes up the reputation of a business.
Now let’s put the shoe on the other foot and consider what reputation factors a job applicant is looking for in a business. As anybody who has done any recruitment, selection, hiring, firing, or UI claims administration already knows, people want different things out of a job. The standard list of things employees care about varies by author and study. But, for a variety of reasons, such research rarely if ever captures the cynical side of the universe. Anecdotally, the simple truth is that some applicants and employees would be happy to live off unemployment benefits. If they figure out how to get a UI payout, they will tell their friends and coworkers.
People learn which companies roll over on UI claims: that’s the nature of having a reputation. They increase the cost of selection by increasing the initial applicant pool. Worse still, due to inevitable hiring mistakes, they get on board, but all the training and development time invested on UI predators is wasted. Employees in this category are also likely to be less productive. After all, as we will see in the next section, people fired for “poor productivity” often win their UI benefits claims. Consequently, the cost of having a reputation for being easy on UI claims will reflect everything you know about the high cost of hiring mistakes: it’s not just the UI payroll tax cost.
Third: Understand the System
The general rule is that an employee is going to get paid unemployment benefits unless he or she either quit without good cause (of which there are very few) or was fired for “misconduct associated with the work.” “Misconduct associated with the work” excludes “mistakes by the employer.” This is probably the area that gives most employers heartburn. A person fired for poor performance, without more, will win an unemployment claim. Why? Under UI rules, it is the employer’s responsibility to hire people who can meet its performance expectations. Of course, there are exceptions and details. Even so, the big picture idea is that employees must have engaged in some sort of “misconduct” to lose their UI benefits and “poor performance” is usually the company’s fault, not the employee’s.
In the final installment, we will examine three real life situations. The first situation will help us understand how to decide whether to challenge an UI claim. The next two situations will reveal the odds of successfully challenging an UI claim.