Outsourcing Unemployment Claims Management – business.com

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The unemployment rate can be unpredictable. For example, unemployment insurance (UI) claims skyrocketed as COVID-19 surged, with Congressional Research Service data showing that the rate reached a whopping 14.8% early in the pandemic in April 2020. Even amid a lower rate and a more normalized economy, unemployment claims are still a critical aspect of running a business – one that employers must manage correctly. 

The process of managing unemployment claims is often tedious and can sometimes be lower on the list of a small business owner’s priorities. However, improper management can lead to dire consequences, including higher insurance rates and hefty penalties. 

One strategy you can use to manage UI claims successfully is outsourcing the process to one of the best human resources outsourcing (HRO) services or a professional employer organization (PEO). 

Here’s a look at the unemployment claims management process and costs, along with the benefits of outsourcing UI claims management, 

What is unemployment claims management?

Unemployment claims management includes proactively keeping down UI claims, managing UI claims as they are submitted (including accepting and denying claims), and tracking and auditing your claims history.

When an employee is terminated from their position for a reason beyond their control (e.g., if they are furloughed or laid off) and meet specific work and wage requirements, they may be eligible to collect unemployment. 

The employee must submit an unemployment claim request to the state government where they were terminated from their job. If they work in multiple states, they should contact the state unemployment office where they live for details on how to file. 

Once an employee files an unemployment insurance claim, it’s the employer’s responsibility to manage that claim. You can either accept or contest the claim; inaction is considered acceptance. 

It may seem easiest to accept every claim, but you’re the one ultimately footing the bill for the money the employee receives. Accepted claims can also result in higher tax rates and penalties, which is why you need a strategic UI claims management process.

Did you know? When you terminate an employee, you’ll also need to terminate their employee benefits, whether they’re fired, furloughed or laid off.

What are the costs of unemployment claims management?

Several factors go into unemployment claims management costs, including paying into an unemployment program, your tax rate and the costs of HR outsourcing. 

  1. Payment into an unemployment program: If you have one or more employees, you’re legally required to pay into an unemployment program consisting of the Federal Unemployment Tax Act (FUTA) and state unemployment insurance (SUI). Rates are based on a percentage of the employees’ wages. The employer is primarily responsible for paying into these funds, although a few states require employee contributions. If so, the employer can withhold SUI tax from an employee’s paycheck and then pay it on their behalf.
  1. Tax rate: Another factor in the cost of unemployment claims management is the tax rate you pay. More UI claims against your organization can result in higher state tax rates and penalties. The cost of managing an unemployment claim vaires. It will depend on the employee’s previous wages, how long they are on unemployment and the state’s maximum benefit amount.
  1. Outsourcing costs: If you hire an experienced HR outsourcing service to manage UI claims for you, you’ll incur the additional cost of its services, but you may be able to save money overall on UI claims costs. The amount you can save on processing your first few claims is often enough to pay for the service itself. 

FYI: SUI may also be referred to as SUTA (State Unemployment Tax Act) tax, reemployment tax or unemployment benefit tax.

What are the benefits of outsourcing UI claims management?

Although it may not suit everyone, there are several advantages to outsourcing your unemployment claims management. Here are some of the most significant benefits.

  • Legal compliance: There are federal and state laws around unemployment insurance and how to manage unemployment claims. Since each state has its own way of managing UI claims, keeping track of UI laws and compliance requirements can be challenging, especially if you operate in multiple states. The best HRO services have legal expertise that can help you stay up to date with evolving regulations.
  • UI claim contesting: If you manage your UI claims on your own, there’s a chance that you might be too busy or forget to contest an unemployment claim and end up paying out on a false claim. Similarly, you might not know how to deny a claim correctly, as there are several guidelines to follow to contest a claim and win. An experienced outsourcing agency will employ the best strategies for keeping your UI claims to a minimum.  
  • UI management accuracy: In addition to approving or denying incoming claims, an HRO service can help you audit your claims history and maintain accurate records. This can be beneficial for maintaining the correct tax rates.
  • Time savings: Managing your UI claims might seem like a minimal task if you haven’t done it before. However, many employers find the process to be frustrating and time-consuming. Turning to an experienced provider can relieve you of that burden.
  • Cost savings: One of the biggest benefits of partnering with an excellent HRO service is the potential for cost savings. An experienced and aggressive claims management program can save you money by keeping your UI tax rate low.

How do you outsource unemployment claims management?

The process for outsourcing unemployment claims management is similar to outsourcing any other core human resources functions. The company you choose to partner with can make an impact on your bottom line, so you’ll want to vet candidates carefully to find the right one. 

Here are three easy steps to outsource UI claims control.

1. Determine your need for UI claims management.

If you have only one employee and have no intention of expanding or reducing your workforce anytime soon, you likely won’t have an immediate need for UI claims outsourcing. However, as your business expands, the need for UI claims outsourcing increases. 

Assess your SUI tax rates and how often employees submit unemployment claims. Hiring a professional organization to take control can help minimize the negative impact of unforeseen circumstances and false claims.

Once you’ve determined your need for UI claims management, it’s time to find the right HRO service with which to partner.

FYI: Warning signs that you need to outsource your HR include an excessive amount of time spent on HR functions, liability exposure concerns, and the need to save money.

2. Research outsourcing vendors.

Many companies can assist you with managing unemployment claims, but you should carefully research available or recommended vendors and what they have to offer. If you already work with an HRO service, start by evaluating what it offers in terms of UI claims management. 

Keep in mind that not all HRO services or PEOs offer unemployment claims management.

Here are some of the best human resources outsourcing services to consider for unemployment claims management:

  • ADP: ADP is an ideal HR outsourcing solution, especially for businesses that need comprehensive benefits administration. In addition to core HR functions, the company offers ADP SmartCompliance, a cloud-based platform that can help automate your unemployment claims process. The service also comes with a dedicated team of ADP specialists to consult. Read our review of ADP to learn more.
  • Paychex: Paychex offers comprehensive outsourcing services for small and midsize businesses. To simplify UI claims management,
    Paychex has a state unemployment insurance service integrated into its payroll. The service can help you monitor and respond to claims promptly and provide an in-depth benefit charge and financial statements audit. Read our Paychex review to learn more about its outsourcing services.
  • G&A Partners: G&A Partners is an excellent outsourcing solution for businesses that need assistance with maintaining legal compliance. The company can administer, manage, and monitor SUI benefits; reconcile unemployment payroll taxes; and process claims. It can also help you proactively develop anti-discrimination and anti-harassment measures. Read our review of G&A Partners to learn more about its outsourcing services.

3. Choose an HR outsourcing service.

When you narrow down your list of HR outsourcing vendors that can assist with UI claims, carefully evaluate each of your top choices. Take note of costs, how effectively the company manages claims and how good its customer support is.

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