How the Unemployment System Works

The unemployment insurance system was designed with two major goals in mind:

• To provide a weekly check to workers who lose their jobs through no fault of their own.
• To promote economic stability by rewarding those employers who minimize their workforce turnover, and by maintaining the flow of dollars through the economy even when there is widespread unemployment.

The benefits paid to jobless workers are financed through federal and state unemployment taxes paid by employers like you. To promote the two goals noted above, every state has a system that bases your unemployment tax rate on the amount of benefits that has been paid to your former workers.

Your actions affect your tax rate. This is one of the few times in life when you can influence your tax rate by your own actions. If you fire or lay off workers only when absolutely necessary, use the proper procedures to do it, and routinely contest unemployment benefit claims when you think the worker is ineligible, you can lower your unemployment tax rate. In some states, you can lower your rate to zero, and pay no unemployment taxes at all! On the other hand, if you don't pay attention to these things, you may well find your unemployment taxes eating into your bottom line.

To find out more about how the system works and how you can influence your tax rate, you need to know:

• Which workers are eligible for unemployment benefits?
• Which actions can disqualify an otherwise eligible worker?