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Unemployment claims: Act now—or pay later

New rules make timely employer response critical

Unemployment claims: Act now—or pay later

Providing the employer’s information in response to a claim from a terminated employee for unemployment benefits is a routine part of the Human Resources function. Recent passage of a federal law makes it worthwhile to review your procedures for ensuring that response is timely and adequate.

Background on unemployment benefits

Unemployment benefits are a creature of both federal and state law. The Federal Unemployment Tax Act (FUTA) imposes a tax on employers, which funds the states’ costs in administering unemployment insurance programs. The Social Security Act certifies states for federal grants from this tax, and the Internal Revenue Code gives a tax credit to employers for their contributions to the state unemployment compensation fund.

However, the day-to-day administration of benefits is left to the states. The law varies from state to state, but the general principle is that involuntarily terminated employees are eligible for unemployment compensation if they lose their job through no fault of their own, for example, if they are laid off because of a reduction in force or a workforce reorganization.

Enter the TAAE Act of 2011

In 2011, in the midst of a “jobless recovery,” Congress passed the Trade Adjustment Assistance Extension Act. The Act extended training benefits and tax breaks to encourage job growth. The law contains some “offset” provisions aimed at shoring up the integrity of the unemployment compensation program, and hopefully reducing its ballooning costs.

One offset provision requires states to adopt measures to ensure that employers respond to unemployment claims promptly and adequately. States’ failure to implement these measures would result in states losing federal subsidies, and employers losing FUTA tax credits.

October 21, 2013, was the deadline for states to enact rules implementing this and other offset provisions. So it’s important to find out how your state has now defined “promptly” and “adequately” before you are next called on to provide employer information in response to a former employee’s claim. You may find that the deadlines are shorter and the requirements for information fuller than before. Otherwise, you may find your company’s unemployment insurance account has been charged, even if the claimant is ultimately ruled ineligible for unemployment compensation.

Questionable terminations at stake

For most unemployment insurance (UI) claims cases—the clear-cut ones—the bank’s existing procedures will probably be sufficient. It is the borderline terminations, those where the misconduct of the employee was not adequately documented, or where a threat of litigation has led the bank to negotiate an exit agreement, that problems may arise.

In these situations, the bank often offers—or unilaterally chooses—not to contest the former employee’s unemployment compensation claim. The bank may file a minimal response to the state’s unemployment insurance agency, or make no response at all. Without full employer information, the likelihood is that benefits will be awarded, but the decision to grant or withhold unemployment benefits is the state agency’s alone. If the claimant is ultimately ruled inelegible for UI benefits, the bank’s account and its UI rating may suffer regardless,  if the information provided was untimely or inadequate.

Practice pointers

Here are four reminders that may minimize your bank’s exposure:

1. Timely action. Make sure all staff (branch managers, department managers) who might receive a notice of UI claim recognize it as such, and forward it to HR as soon as possible.

2. Timely follow-up. Respond promptly and fully, within your state’s rules, not only to the first report of claim, but to all appeal requests and hearing dates.

3. Monitor third parties. If you use a third party administrator to handle UI claims, check that they are complying fully with state rules on timeliness.

4. Think it through. Your plan on how to respond to a UI claim begins with the termination decision itself. As in most things, honesty is the best policy.

Devil in the details

As with many routine HR duties, the details of unemployment insurance claims are important, and noncompliance can be expensive. These new state rules add some urgency to reviewing your best practices.

Marian Exall

Marian Exall (marian.exall@gmail.com) is an employment lawyer and HR professional with more than 25 years' experience advising banks and other employers on compliance issues. She is a principal and co-founder of Employment Law Compliance, Inc. which provides HR compliance solutions to banks exclusively through the American Bankers Association. She is a frequent speaker and writer on human resources compliance in the banking industry, on association briefings and webinars, and at national and state bankers' association conferences. For more information on this or other employment compliance topics, please call Employment Law Compliance at 866-801-6302 or go to www.employlawcompliance.com.

Marian also writes fiction. Her latest novel is a mystery called A Slippery Slope. For more information and to order, go to www.marianexall.com

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