In the ever-evolving landscape of state unemployment insurance (SUI), payroll professionals are faced with a growing array of challenges. From the rise in fraudulent claims to the complexities associated with remote work, it is essential to stay compliant while minimizing tax liabilities through a strategic and informed approach.
Recently, Checkpoint Payroll Update spoke with Brian Barnett, Senior Account Executive at ValeU Group, to discuss best practices in SUI tax planning.
The importance of disputing inaccurate claims
Disputing inaccurate or ineligible claims on state unemployment insurance charge statements is an important aspect of managing SUI tax costs. Fraudulent claims, particularly those filed by individuals who have never worked for the company, can significantly inflate an employer’s SUI tax rate.
During the COVID-19 pandemic, there was a surge in fraudulent claims, often involving shell companies. Although the volume has decreased, Barnett warned that the threat persists: “While fraudulent claims have decreased in relation to COVID abuse, I would say that they remain elevated, and employers should remain vigilant.”
He advised employers to carefully review SUI tax charge statements to identify and contest errors. This not only protects their financial interests but also helps safeguard employee data from identity theft.
However, even the most diligent efforts to manage SUI claims can be compromised if employers fail to file correctly or overlook errors in state data. As Barnett emphasized, it’s ultimately the employer’s responsibility to review and challenge any inaccuracies in their SUI records to avoid costly penalties or inflated tax rates.
Best practices: Documentation and policy enforcement
Clear documentation and consistent enforcement of company policies are foundational to successfully managing SUI claims. Barnett said that employers should maintain:
- Records of performance and conduct issues
- Documentation of disciplinary meetings
- Resignation letters and termination notices
He stressed that these documents are often critical during SUI hearings, where outcomes can depend on the availability of specific evidence and firsthand witnesses. Poor documentation can lead to unfavorable rulings, both initially and on appeal.
Remote work and compliance challenges
The rise of remote work has introduced new complexities in determining the correct state for SUI tax purposes. Payroll professionals must base SUI and withholding decisions on where the employee lives and works, not where the employer is located. Failing to do so can lead to double taxation or missed liabilities.
Barnett explained, “Sometimes payroll will defer to the employer’s location if the company is not set up in the state where the new employee lives and works. This can result in double taxation because the state where the employee lives and works will seek its tax revenue.”
There are also reciprocal agreements between states that payroll departments should be aware of to mitigate double taxation. Additionally, misclassifying remote employees as independent contractors-especially in states where the employer isn’t registered-can trigger audits when those individuals apply for unemployment benefits.
“This can lead to audits, and the state or federal authorities may want to investigate other employees who may have been misreported. That is why best practices save time in the long run, even if they require extra steps upfront, by ensuring compliance and avoiding future complications, penalties, and interest,” Barnett warned.
A proactive approach pays off
For payroll professionals, navigating the complexities of unemployment insurance requires vigilance, thorough documentation, and a proactive mindset. Barnett suggested employers protect their operations and reduce financial risks by:
- Disputing inaccurate claims
- Maintaining thorough documentation
- Ensuring compliance for remote workers
- Understanding reciprocal agreements and classification rules
Overall, Barnett’s insights highlight investing time in best practices upfront to help avoid expensive complications later on.
