How you're handling your employee on-boarding, management, and terminations makes a HUGE difference in your experience rating and how much you pay to the state each payroll.
State Unemployment Insurance (SUI) is just a cost of business, like workers' compensation or liability coverage. But believe it or not, it's a cost that you as an owner have a great deal of control over. Your policies and procedures have a big impact on your experience rating and your bottom line.
What is an experience rating?
Experience rating is the method by which employer contribution payments under the state unemployment compensation laws may be varied on the basis of each individual employer's experience with unemployment. Experience rating is based on the proposition that the cost of unemployment compensation should be paid in such a way that those employers whose workers suffer the most involuntary unemployment should pay at a higher rate than those employers whose workers suffer little involuntary unemployment. (payroll-taxes.com)
In plain English, the more successful claims you have against you, the higher your rate. Much like a credit rating, those who manage their staff in such a way to avoid unemployment claims (much like those who pay their credit card bills on time and stay within their credit limits) enjoy significantly lower rates than those who don't have a solid system in place.
And this is real money. Imagine you have a semi-monthly payroll of $50,000 in gross wages and an experience rating of 2.7%. Your cost yearly for SUI is $32,400. A drop of just .7% would save $8,400 each year! At a $30/month club, that's like adding 11 new members a month. We have a current client with such a stellar claims track record, that they're enjoying a 0% rate in one of their states!
So, what can you do to get your rating down?
- Be selective in your hiring process.
I know many times managers' backs are against the wall and they feel the need to plug a hole with a warm body, but a poor or hasty hiring decision will cost a business in more ways than one. Be clear on your job description, qualifications needed, and interview process.
- Establish written policies and procedures and adhere to them. This is your play book and your entire team should know it. If you have a member who isn't keeping with the plan, they need to be counseled. Be sure to treat all team members equally when it comes to enforcement. This ensures a fair and operationally efficient work environment.
- Document, document, document.When P&P violations occur and a counseling session is needed, make sure you get it on paper. Better, yet, obtain a statement of understanding from the team member, establish an action plan (and time frame) for correction, and have the team member sign off on it. Keeping detailed, accurate records is important should the time come when termination is prudent.
- Get your ducks in a row before you fire.Sometimes a violation doesn't provide time for planning (safety issues for members/employees, egregious acts), but most of the time a few minutes spent planning can benefit you greatly. Is the problem something that can be corrected? Has the team member been counseled before concerning the issue? Were they given an action plan for improvement? Would you treat your other team members the same way for a similar violation? If you can answer yes, proceed. But be sure to check with your HR department to ensure you are working within the state specific laws for termination (final check payment, documentation, etc.)
- When an Unemployment claim is filed, fight it!If you don't answer the state's request for documentation on a claim and/or you fail to show up for a phone hearing, the odds are nearly 100% in the favor of the ex-employee. And that claim goes against your experience rating.
By making smart hiring decisions; having clear rules and adhering to them; documenting missteps; being thoughtful when the need for termination arises; and fighting all claims, you can begin to ensure an experience rating improvement over time. As a bonus, these same practices also go a long way in protecting you against discrimination claims. Smart operations for a smart business!