How small businesses can cut down on unemployment insurance costs

With the national jobless rate hovering around nine percent, small businesses all over America are having a tough time coming to grips with unemployment insurance.

Unemployment insurance is a joint federal-state program that provides cash benefits to unemployed workers. Businesses pay unemployment insurance tax based on federal and state guidelines.

A business’ state tax rate is based on payroll size, the amount the company has paid into the system, and the amount of unemployment benefits former employees have collected.

The state tax rate for a business increases as more of that company’s ex-workers file unemployment claims. In most states, a single claim against a small business can result in an increase of several thousand dollars a year in unemployment insurance tax.

“In this struggling economy, it’s more important than ever for a small business owner to control unemployment insurance costs,” says attorney Martin Sweet of legal information website THELAW.TV .

Here are some ways to do it:

• Hire good people. It sounds simple, but the better the employee, the less chance you’ll have to fire him and pay him unemployment benefits. Make sure you conduct in-depth interviews and talk to some of his former colleagues, not just his references. Background checks are also valuable, as is a check of a prospective employee’s social media accounts.
• Take action quickly. If a new employee is not working out, terminate her as soon as possible. Every state has a probationary period for workers, and if you fire someone before that period ends (30 days in many states) you will not have to pay unemployment benefits.
• Document everything. A business is only liable for unemployment benefits if a worker is unemployed through no fault of his own based on state guidelines. Therefore, it’s critical to document every violation of company policy and take proper disciplinary action. Documentation will go a long way in helping you win a claims hearing down the road.
• Review your statements. After you have finished paying unemployment benefits to a former employee, you will get a statement from the state showing how much you’ve paid. Make sure you check it closely. State labor departments make mistakes all the time. It is not uncommon for a small business owner to find out he has been paying unemployment benefits to a former worker who is not eligible to receive them.

The other thing a small business owner can do is hire a lawyer who specializes in fighting fraudulent or baseless unemployment claims. A lawyer can help you win claims hearings and save you a lot of money.

“It’s important to hire an attorney immediately upon receipt of the notice of the filing of the claim,” says Covington, Kentucky small business attorney Paul Boggs of Wallace Boggs, PLLC . “You need to protect your company and your rights as an employer.”

Detroit, Michigan small business attorney Bob Sheehan of Sheehan & Associates, P.L.C. adds, “A lawyer can help you win claims hearings and save you a lot of money.”

Many states are also helping small businesses combat unemployment insurance fraud. For example, Ohio recently launched a Web site that allows anyone to report suspected fraud online instantly and anonymously.