COVID-19 has changed how small businesses operate, from applying for relief such as the Paycheck Protection Program (PPP) to updating payroll processes. Payroll—comprised of complex processes including garnishments and unemployment claims, payroll taxes, and classifying workers—doesn’t have to be confusing. By understanding payroll changes, payroll technology, and the ebb and flow of time and attendance, you can improve and simplify your payroll processes. WeWork Business Solutions, powered by VensureHR makes professional services simple, so you can revitalize your small business during this time.
Employers have a lot to think about when it comes to payroll. And while most may know the basics about unemployment claims, these issues have come more to the forefront in 2020, as a result of the impact COVID-19 has had on the economy.
Even for business owners who haven’t yet dealt with this issue directly, it’s important to be well versed in how unemployment claims function.
What employers need to know about unemployment claims
Most employers pay both Federal Unemployment Tax Act (FUTA) taxes and State Unemployment Tax Act (SUTA) taxes. FUTA taxes are employer-only taxes not deducted from employee wages, and help fund unemployment compensation to workers who have lost their jobs. The FUTA tax rate is 6 percent of the first $7,000 each employee earns per calendar year.
SUTA taxes are used to help fund unemployment compensation for workers who have lost their jobs. However, SUTA tax rates and requirements are determined on a state-by-state basis. For example, unlike FUTA taxes, some states require both employer and employee to pay SUTA taxes. SUTA taxes are typically calculated based on the number of employees, funds already paid for unemployment insurance, and the number of former employees who claimed unemployment benefits. To determine SUTA taxes in their state, employers may contact their respective state government labor offices.
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded unemployment benefits for those impacted by COVID-19, as well as to workers not typically eligible for such benefits, such as independent contractors. But unemployment benefits are regulated on a state-by-state basis rather than by a single, national agency for processing and distributing benefits.
If an employee is laid off or otherwise separated from your organization and files an unemployment claim, you are responsible for validating the claim details, including:
- Employee status (e.g., full-time, part-time, not an employee)
- Circumstances for separation (e.g., laid off, voluntarily resigned, terminated)
- Refusal of employment
- Ability to legally work in the U.S.
- Whether the ex-employee is receiving any compensation (e.g., pension, severance)
Employers should understand and communicate that for employees to be eligible for unemployment, states typically require that:
- Loss of employment is no fault of the employee (i.e., lack of available work)
- State requirements are met for wages earned or time worked during a base period
- Other state-specific requirements are met
If an employee files an unemployment claim but is not eligible to receive unemployment insurance, you will be required to provide proper documentation to contest it through the first state notice received regarding the claim.
Understanding state-specific unemployment eligibility requirements can help expedite contesting illegitimate unemployment claims. States provide a filing timeframe for employers to file contested claims in order to avoid penalties or tax increases.
How to protect against unemployment scams
The Federal Bureau of Investigation has reported a significant increase in fraudulent unemployment insurance claims related to COVID-19 through the use of stolen personally identifiable information. Additionally, the expanded benefits under the federal Pandemic Unemployment Assistance program have expanded criminal activity regarding unemployment claims. Specifically, criminals are those who pose as self-employed or independent contractors to illegally obtain unemployment benefits. Victims (the actual self-employed people the criminals pose as) usually are unaware of the scam until they try to file an unemployment insurance claim, receive a notification from the state unemployment insurance agency, receive an IRS form for receipt of collected benefits, or are notified by their employer that a claim has been filed while the victim is currently employed.
To help address and prevent unemployment claim scams, employers should:
- Notify employees and client contacts at the first signs of suspected fraud
- Provide employees resources, training, and pertinent information on identifying, reporting, and preventing fraud
- Check the monetary determination received. If the Unemployment Insurance Agency (UIA) has suspicions and has flagged the claim, the monetary determination will note that they are unable to verify the identity. If UIA notices inaccurate information, or if the employee referenced is still working, employers should contest the monetary determination in a timely manner to prevent the fraudulent claim from being paid.
- Respond to any fact-finding requests received from the UIA
- Report suspected fraud or identity theft to the respective state unemployment insurance agency
With legislation changes likely to arise as the COVID-19 situation continues to evolve, partnering with a trusted professional employer organization can alleviate the stresses of compliance, timely and accurate unemployment claims, and simple payroll processing. Learn more about how WeWork business solutions, powered by VensureHR can streamline your payroll processing and administration.
Lizz Morse is a marketing and communications supervisor at Vensure Employer Services. She holds a master of science in psychology from Grand Canyon University and has been published in Attorney at Law Magazine, Real Estate Agent Magazine, and The Good Men Project, among others. Morse has also ghostwritten a number of articles focused on small business administration and operations, appearing in publications such as Thrive Global and Small Biz Daily.