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Many businesses will need to pay higher payroll taxes in 2021 and upcoming years to replenish state-based trust funds used for funding unemployment benefits. Unemployment benefits are primarily financed through the quarterly assessment of taxes on an employer’s taxable wages.

As a result of workforce layoffs stemming from the impact of the COVID-19 pandemic on many businesses, unemployment claims filed and paid by the states have been and remain at record levels. 

The financial drain on the state unemployment trust funds is expected to have a negative impact on future SUTA tax rates for the majority of  business owners, not just those who work with Professional Employer Organizations (PEOs). The mass staffing reductions in 2020 have caused a reduction in taxable wages used in the calculation of SUTA rates. An immediate reduction in taxable payroll, as seen in 2020, coupled with record unemployment claims paid, has exacerbated the impact on SUTA rates, depending on the state. For those states that delayed the impact on rates in 2021, the future of where the rates will go remains in question.

Millions of Americans continue to draw jobless benefits. The deluge of claims is unparalleled in the history of the unemployment insurance system and has drained the trust funds that most states use to pay benefits. The impact will be a rise in SUTA taxes for many businesses across the country starting in early 2021. An example of the anticipated impact on a business is noted below:

As one business owner recently shared, based on his tax rate in Florida, he expects to pay an additional $50,000 in re-employment taxes in the upcoming year — on top of losing about 50 percent of the revenue from his restaurant business. The increased SUTA payments will be used by the state to replenish the unemployment trust fund.

What can you do to prepare?

There are several steps you can take to be prepared, including:

  • Identify the risks for your business and prepare a forecast if you have a significant taxable payroll. Consider the impact on your budget and make adjustments, as necessary.
  • Be meticulous with Claims Management by keeping good records (Document, document, document!); providing accurate information related to new hires and separations, responding in a timely way to requests for information, attending hearings when necessary, and documenting any appeals filings. Your company's contribution is also affected by the number of former employees with paid unemployment insurance claims. The more claims filed and paid, the higher your rate. Promptly responding to claims when they're filed — particularly those by former employees not eligible for unemployment benefits — is key to keeping your rates as low as possible. By proactively managing your SUTA contributions and responses, it's possible to save hundreds of dollars per employee per year. 
  • Respond to unemployment claims promptly as failure to respond in a timely manner can have serious consequences, including penalties and fines. Missing deadlines can also leave you unable to effectively contest an invalid claim. 
  • Be proactive in helping to detect and prevent fraud by reporting fraudulent claims as they come to light. Unfortunately, fraudulent claims have risen dramatically during the COVID-19 pandemic.

Understand the SUI appeals process

The state unemployment agency determines whether a claim is approved or denied. If it's approved, the agency notifies protesting employers, which receive a statutory period in which to file an appeal. This involves filling out the appropriate form and providing supporting documentation for their case, such as resignation letters, exit interviews, disciplinary notices, and employee handbooks. After reviewing the appeal, the state agency makes a determination.

Employers at that time can request a hearing. Both parties usually appear in person or by telephone. In most states, employers have the opportunity to present their narrative, show supporting documentation, and produce and interview witnesses who can support their response. For example, a company supervisor might testify about firing an employee for misconduct. A human resources manager might speak about her oversight of the process and the exit interview she conducted with the aggrieved employee. Depending on the state, hearings may be attended by a representative from the company, a knowledgeable SUI hearing specialist, or an attorney. A state may require multiple levels of appeal before a final decision.

How can a Professional Employer Organization help?

Some companies handle unemployment claims management in-house, but busy human resources (HR) departments don't always have the bandwidth to juggle an effective SUI program and respond to claims. Complicated cases may also require expensive legal expertise. Therefore, your business may want to consider using a PEO to assist. If you work with a PEO, you can get help with:

  • HR services to help mitigate increased SUI and other related costs due to staff reductions, as well as valuable best practices related to progressive discipline and recordkeeping.
  • Expert guidance to help keep up to date with the quickly evolving changes related to SUI and unemployment, and regular reminders of state guidelines.
  • Sharing the power of information to help keep you up to date with state changes in response to the COVID-19 pandemic, and providing helpful guidance to enable your business to navigate those changes. A PEO can help you to stay abreast of state-based mandates and how these vary by location. For instance, some states are waiving COVID-19 related claims during the 2021 charge period. A PEO can help to keep you apprised of these changes and share updates, as necessary.
  • One of the unique ways that a PEO can assist is by providing claims management expertise and processing. PEOs can provide support with SUI claims management with help responding to and tracking claims; and helping to make sure claims charges are legitimate. A PEO can also help to protest claims, if necessary and where possible.


Claims Management Expertise and Processing

One of the unique ways that a PEO can assist is by providing claims management expertise and processing. PEOs can provide support with SUI claims management with help responding to and tracking claims; and making sure claims charges are legitimate. A PEO can also help to protest claims, if necessary.

Be sure to leverage the resources offered by Oasis, a Paychex® Company in our COVID-19 Help Center, including state-by-state guides on government health and safety mandates. 

Take some time to learn more about the Oasis employee-centric human resource services, including payroll processing, benefits administration, and risk management.

Author: Kathleen Lively, Manager Compliance Risk, Oasis, a Paychex® Company.

Client Testimonial

As Peggy A., a client from an Eye Care company said, “I want to thank you and your entire staff for all your help throughout this whole chaotic, stressful process of dealing with unemployment claims.  t hasn’t been easy for any of us and I appreciate all your hard work."

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