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You’ve heard about it for months on end.  You’ve seen the mounds of mail arrive with unemployment claims inside, or maybe your third-party administrator has been calling you 1,000 times more than usual for termination information on your former employees.  You’ve been assured the unemployment benefits would not be charged against employers, so you were not concerned about your tax rates.  But wait!  Your 2021 unemployment tax rates increased substantially.  How can this be when employers weren’t supposed to bear the burden of this?

This is an alarming but real problem many employers are faced within 2021.  The unemployment compensation system was developed in the 1930s to temporarily compensate people out of work through no fault of their own and was funded by employers through the payment of taxes.  The latter part of that statement remains true in 2021, but unfortunately, more and more claimants are awarded benefits for a variety of reasons.  The taxes paid by employers are held in a trust fund and paid out by the state unemployment agencies to qualified individuals.  If the amount of money coming into the trust fund is less than what is being paid out, the fund balance is quickly diminished.  This is what occurred because of the pandemic of 2020.  Now, those fund balances must be replenished, and the responsibility is held squarely on the shoulders of employers.

While every state calculates tax rates differently, most use some of the following components in one manner or another:

The tax rate employers receive annually is made up of a historical period of these components.  Employers have control over some of these components, such as taxable payroll or benefit charges paid to former employees.  But others are statutorily mandated, so regardless of how well an employer does of managing its components, state factors may still negatively impact rates.

What can you do to impact this?

There are several things employers can do to help mitigate their risk.

  1. Protest all claims for former employees who voluntarily quit for no reason associated with employment or who were discharged. The more claims you win, the fewer benefit charges will be paid from your account.
  2. Audit all benefit charge statements from the state unemployment offices. Just because you shouldn’t be charged doesn’t necessarily mean you won’t be charged.  Be aggressive on this because fraud and identify theft are other components of unemployment.  You have protest rights on these documents so take advantage of that.
  3. Audit annual tax rate notices and takes advantage of rate reduction options available. Many states enable employers to buy down their rate each year so make sure you are aware of your options.
  4. Hire a third-party agent to manage this process for you.

The payment of unemployment taxes is required for employers, but you don’t have to pay exorbitant amounts if you have a plan for mitigation on the front-end.


Contact CCC to see how we can save your organization time and money.
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