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What impact will unemployment claims have on our business?

Designed to provide laid-off workers with weekly income during short periods of unemployment, unemployment insurance programs are funded by state (SUTA) and federal (FUTA) taxes paid by employers. If an employer has a high level of terminations where employees file for, and receive, unemployment compensation, the results can be higher SUTA tax rates for the employer.

Generally speaking, state unemployment taxes are calculated based on an employer's size, the amount the organization has paid in wages and the unemployment insurance benefits collected by former employees. These factors contribute to what is commonly referred to as the employer's experience rating. This rating will set an employer's SUTA tax rate for the next quarter, or longer, based upon state practices.

When examining their financial information to determine the business's costs associated with unemployment claims and contributions, employers would compare the number of claims in a given period with the amount of increase or decrease to their SUTA rates derived from that period. Of course, lowering the number of successful unemployment claims will lower the SUTA rates.

Some employers choose to contest every unemployment claim in an attempt to keep their experience rating low, and others choose not to do so. SHRM's How to Determine if You Should Contest an Unemployment Claim guide may help employers make such determinations.


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