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Since December 2007, the U.S. economy has lost 6.7 million jobs. The resulting surge in unemployment claims has depleted state unemployment insurance funds and set the stage for substantial increases in the taxes small businesses will pay to help fund current claims and replenish state coffers. In 2010, employers face a projected increase in unemployment insurance tax payments that ranges from 2.5% to 600%.
Unfortunately, there are many factors beyond our control when it comes to unemployment taxes. The economy, extended unemployment benefits, and states borrowing federal funds to pay unemployment claims are all driving up rates. The good news is that your rate can be controlled, in part through good employment practices and also by how you handle unemployment claims. Be sure to consult with human resources experts to ensure you have the right processes in place, including:
1. Having the proper pre-employment screening, training, and supervision in place so you can hire and retain the right employees for your business. High turnover contributes to higher unemployment insurance rates.
2. Making sure you accurately manage unemployment claims made by your former employees. Following established procedures along with accurate record-keeping will help you avoid unnecessary claims activity.
3. Always be on the lookout for fraud. Experts estimate that as much as 10% of all costs in the unemployment insurance system are attributable to fraud. Illegitimate claims from employees who are not entitled to collect unemployment insurance drive rates higher.
Small businesses can no longer afford to remain ignorant about this payroll reality. Keeping your eye on these key factors will mitigate unemployment insurance costs over the long run.
Burton M. Goldfield
President and CEO
San Leandro, Calif.