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How and why to outsource your organization’s unemployment claims management

By March 21, 2022April 1st, 2022No Comments

Managing and responding to unemployment insurance (UI) claims comes with the territory of running an organization. Doing so however is a tedious process—especially when caseloads pile up during times of mass unemployment, as seen during the COVID-19 pandemic. Managing UI claims requires quick, informed, and specific actions. Failing to correctly respond can lead to expensive consequences, including higher insurance rates and penalties. 

Outsourcing your organization’s UI claims management process to a professional employer organization (PEO) or human resources outsourcing (HRO) service can help you successfully manage claims, saving you time and money along the way. 

Read on to learn what you need to know about managing unemployment insurance claims and the benefits of outsourcing UI claims management and becoming a reimbursing employer.

Unemployment Insurance 101

The Social Security Act of 1935 requires for-profit employers to provide up to 26 weeks of unemployment compensation benefits to certain separated employees. 

State-run unemployment insurance (SUI) programs distribute these benefits to eligible separated employees from a pool of funds, which are raised by a payroll tax (benefits premium) on most employers. Each employer’s payroll tax rate is determined by their history of layoffs in addition to other state and national economic factors. 

When an employee is laid-off, they may be eligible to collect unemployment. All employees have the right to file a claim however, not all claims qualify for UI. To do so, the employee must submit an unemployment claim to the state where they worked. 

Once a claim is filed, the employer is responsible for managing it and either accepting or contesting the claim. Failing to respond to a claim is considered acceptance. 

How you manage unemployment claims will affect your organization’s bottom line. 

  1. Accepting unemployment claims will cause your organization’s unemployment tax rate to rise in future years. 
  2. While the actual cost of a claim may vary based on how many weeks the severed employee collects benefits, the average UI claim costs an employer $4200—but can sometimes cost upwards of $10,000. 

Are nonprofits exempt from providing unemployment insurance? 

For nearly 40 years, only for-profit employers were required to pay the unemployment payroll tax. An amendment in 1972 changed that—requiring all employers, including 501(c)(3) public charities, to provide unemployment benefits to eligible terminated employees. 

Importantly, there was a caveat: certain organizations, including registered 501(c)(3) nonprofits, public/government entities, and tribal-owned businesses, were given the legal right to manage their unemployment benefits outside of the state program. 

In this scenario, the employer does not have to pay a UI tax (benefits premium) on their taxable payroll or contribute to the state unemployment fund pool. Instead, the state pays unemployment benefits to the employer and then bills the past employer for reimbursement after the benefits have been paid out. 

In the nonprofit sector, about 35% of employers have chosen to opt-out of paying the unemployment insurance tax and become reimbursing employers.  

Based on a recent analysis, 86% of organizations paying SUI taxes are overpaying, meaning they pay more in taxes and benefits than they cost the state in claims. This means that these employers are funding the benefits of other employers in their state, instead of only paying for their own unemployment charges. 

What is unemployment claims management? 

Unemployment claims management is the process of managing, tracking, and auditing your organization’s UI claims. Effectively managing the UI claims process is arguably the most important thing an organization should address, according to the Society for Human Resource Management.

When an unemployment claim is filed, it’s the employer’s responsibility to proactively respond to it. To do so, employers must establish a robust internal procedure to make sure that UI claims are immediately presented to the proper individuals—which typically means management and the severed employees’ direct supervisor. The timing here is critical, as the deadline to respond to UI claims is quick. 

The employer must then decide whether to challenge or accept the UI claim, taking into account potential costs and strategic considerations. 

If an employer chooses to challenge a claim, they must learn the specific procedural rules for doing so in their state and prepare for a hearing.

Procedural rules include: 

  • Filing deadlines
  • In-person and virtual hearing procedures
  • Authentication of documents
  • Evidence gathering from outside sources through subpoenas
  • Giving proper notice to the claimant and UI hearing officer 

Following the hearing, an employer may opt to appeal the decision. To do so, the employer must demonstrate that the hearing officer made a mistake in applying the law, and be prepared to persuade the hearing officer of the facts of the case. 

For reimbursing employers, an additional, crucial part of unemployment claims management is having reserve funds set aside to reimburse the government for any approved UI claims. 

While becoming a reimbursing employer can help your nonprofit save money—managing unemployment claims, particularly during an unpredictable pandemic, can be complicated and time-consuming. Fortunately, you can outsource your unemployment insurance claims management to cover all your bases and ensure a smooth, compliant process.

What are the benefits of outsourcing UI claims management? 

Outsourcing your UI claims management to an experienced, full-service UI management organization can help you keep your unemployment claims to a minimum and save you time and money. 

501(c) Services offers all-inclusive unemployment cost management services that begin with supporting your organization’s HR department by providing resources and strategies to help reduce expensive separations. 

When separations do occur, your dedicated UI claims manager will evaluate and protest any UI claims you receive, help your former employee find their next position faster, and audit your charge statements to mitigate any errors by the state. 

Specific benefits of outsourcing your UI claims to 501(c) Services include: 

  • A dedicated UI claims manager
  • Unlimited access to UI hearing representatives
  • Access to an industry-leading UI management app
  • Reemployment services for separated employees
  • Unlimited assistance from senior HR professionals
  • Up-to-date employee management training for HR staff and other supervisors
  • Industry-leading background and identity services
  • Talent acquisition services

For reimbursing employers, the 501(c) Agencies Trust can help you build a reserve account that you own, and that earns interest through conservative investing. The Trust also monitors and handles all unemployment cases, and reimburses the state for any paid claims.


Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for

(Image by Kerstin Riemer from Pixabay)

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