There’s one unchanging fact when running a business. No matter what the size, you cannot separate the business from its market. It’s for the owner to identify the market niche and sell to it consistently enough to generate a profit. Should something happen to disturb the confidence among the customers/clients, there’s a real risk the business may be lost. This is the current problem for small businesses across America.
Although we may have emerged from the recession as a matter of technical accounting at a federal level, there’s a continuing loss of confidence in the markets. At first, the average person cut down on discretionary spending and took action to reduce indebtedness. This significantly reduced buying power and the majority of businesses had to respond by cutting staff. For this reason, unemployment has remained over 9% for the last three years. In fact, the actual number of unemployed is far higher because the federal statistics only count the number of people claiming benefit and, unless market sentiment picks up significantly, unemployment is likely to remain high for the foreseeable future.
However, cutting overheads by reducing staff is a difficult balancing act because of the unemployment insurance (UI) costs. UI is a program to pay cash to those who lose their jobs. It’s jointly administered by the federal and state governments. In theory, it’s a program based on the notion of fairness. If a business terminates an employee, that business owes a responsibility to cushion the loss of pay while the ex-employee seeks alternate employment. Except, the rise in UI costs has made the economics of dismissal difficult. UI is a tax based on three factors: the size of the payroll, the amount the business has paid into as UI, and the amount claimed from that UI fund. So if a business is proposing to terminate a fairly senior employee of long-standing, the business should consider what claim this employee might make for benefit. Even one claim can result in a tax increase of several thousand dollars.
So the best way to approach this issue is, wherever possible, not to terminate an employee unless the UI fund has a good balance in it. If a termination is unavoidable, ensure there are very good reasons for selecting the particular employee. An ex-employee is only entitled to claim benefit if he or she is without fault. If there’s evidence of misconduct, document everything and go through a comprehensive disciplinary process. If this person should then seek benefit, the small business is in a good position to defend it. This is something you should discuss with your small business insurance advisor. Make absolutely certain the cost of hiring an attorney to dispute a claim for unemployment benefit is covered. It might surprise you to know there are a significant number of fraudulent or baseless claims for benefit. If you can afford an attorney who specializes in this area of law, it can save you the additional thousands that would otherwise be added to your UI tax. Your local Department of Labor should give your business a notice if a claim is filed for benefit. If you receive this notice, act immediately to notify your small business insurances company and recruit a suitable attorney to defend the claim.