Paying Too Much in Unemployment Tax?
When considering layoffs, most companies are thinking about reducing workforce to decrease costs. But, when employees linger on the roles of unemployment for too long, companies often face unexpected increases in their unemployment tax liability. As an HR professional, you may not be concerned with tax liability. But, when a layoff doesn’t net the full financial benefits your organization expected, you may be asked to explain why.
There are some elements of unemployment tax liability that no one has control over. Unemployment taxes are mandatory in every state, but how they are calculated can vary depending on your location, and how much you pay can also affect the amount of federal unemployment taxes you pay. Depending on your experience rating (the volume of turnover your organization experiences), you may be facing a rise in your unemployment tax payments for several years after a layoff.
In a recent whitepaper, we outline how unemployment taxes are calculated as well as the long-term effects of employees who remain on unemployment or continue to return to unemployment due to poor job seeking experiences. In The Unspoken Costs of a Layoff – we illustrate why it’s important for HR departments to provide the services and resources employees need to find the best possible fit - with the best prospects for long-term stability – as quickly as possible after a layoff event.
Protect against excessive taxes with adequate records
Your unemployment insurance (UI) tax rates are based on the number of employees who claim and successfully collect unemployment benefits. Although you can’t control how many people are included in a restructuring or layoff event, you can make sure that only qualified employees successfully collect unemployment insurance claims against your organization.
Too often, companies receive tax penalties because non-qualifying individuals are receiving benefits; and too often, employers don’t have the necessary documentation to successfully dispute unqualified clams. Adequate record keeping is the only defense against unentitled employees receiving UI, and your organization receiving tax penalties as a result. If you don’t already have an effective system in place, you’ll want to institute one immediately, especially if your organization is considering restructuring or layoffs.
Before you decide to reduce staff, you need to have access to complete, updated records during times of system is place that will track your exiting employees, and compare lists of qualified employees to the names of employees collecting unemployment insurance. Your outplacement services provider should be able to furnish the appropriate data through tracking and analysis software that provides a complete system of record in a secure environment.
Having updated employee data at your fingertips will help you monitor and manage the employees who are participating in unemployment insurance claims, and protect your company against unnecessary state unemployment tax payments. Be sure your tracking software is interactive, allowing you to cancel or modify your employee lists in a secure environment. Keeping an updated roster of employees who are eligible for unemployment insurance, and tracking the length of time your transitioning employees take to find new roles outside of your company will help protect your organization from increased tax costs due to non-qualifying individuals receiving benefits at your expense.
Finding alternatives to reductions in force
Considering the possible high costs of downsizing an organization’s workforce, companies should think about alternative solutions to achieve desired bottom line goals. Typically, organizations seek financial relief through reductions in force in response to a variety of market and internal forces, including:
- A sudden downturn in the industry
- Automation or outsourcing options
- Changes in the product or service offering
- Redundant positions following a merger
In addition to the tax costs and liabilities associated with reductions in force, losing valuable and knowledgeable employees can affect an organization’s ability to recover and continue on to future profitability. Instead of eliminating positions and losing the talent that will help move your company forward, retain high-performing talent through redeployment programs.
Redeployment programs allow organizations to reduce redundant positions, institute automation, restructure in response to changes in product and service offerings, while creating a flexible and mobile workplace environment.
While some companies offer mobility, few have formalized programs to facilitate the discovery of relevant internal opportunities or provide the support employees need to successfully transfer between departments. When companies are shutting down one division and conducting layoffs, they are often expanding in another area and actively recruiting and hiring. Employees hoping to join growing divisions within the company, may not be fully prepared to compete for those positions with individuals currently in job seeking mode.
A comprehensive redeployment program will increase the success of employees hoping to remain within the company, while helping businesses meet strategic needs. If you don’t have the resources to offer a comprehensive redeployment program internally, consider hiring an outside services provider. A successful redeployment program should supply individuals with the same level of support given to exiting employees, and should include:
- An automated system to match employees to appropriate positions within the company
- Personalized one on one coaching
- Professional branding and resume and LinkedIn profile writing
- Resources to help employees brush up on job seeking skills
Finding alternatives to reductions in force help ensure that your organization is well-positioned to grow, while minimizing legal and tax liabilities and improving employer brand sentiment.
Your company’s ability to overcome an economic or business downturn and avoid the possible negative consequences associated with reductions in force, depends on the company’s ability to manage the event. Whether through better record keeping, or RIF alternatives – such as redeployment programs - companies with effective human capital management systems are less likely to be surprised by increases in unemployment taxes.