Arizona’s Department of Economic Security (DES) administers the state’s unemployment benefits and laws that apply to employees and employers.
While the laws about unemployment benefits apply to most businesses and employees, employees have to meet certain criteria to receive benefits, which are paid for by their last employer. But employers can challenge a claim for benefits from employees who have been fired for workplace violations such as misconduct or insubordination or who voluntarily left employment.
Not all employees are eligible for unemployment benefits from you, or at all.
Independent contractors are expressly excluded from receiving unemployment compensation. However, there are many changes coming that will require employers to reclassify employees. At present, employers who are found to have misclassified employees as independent contractors may face significant liability from DES, the IRS, and the the Arizona Industrial Commission. Please see our article on misclassifying 1099 independent contractors for more information.
How are Unemployment Benefits Paid For?
Most Arizona employers are required to pay an unemployment tax that will be used to provide temporary payments to employees who have lost their employment through no fault or action of their own. This includes people who are laid off work without a severance package, or when the package has run out—unless the severance agreement indicates that an employee will not apply for unemployment benefits.
Each year, DES mails a form to all employers advising them about their upcoming unemployment tax payments. New employers will pay a flat 2% of all wages paid to employees for two years. After that, they can adjust the rate using a formula DES provides to them. Rates range from .02% to 5.4%.
When are Employers Required to Pay for Unemployment Benefits? Can They Challenge a Claim?
Employers must maintain a certain amount of funds paid to the state to cover their share of unemployment payouts. Therefore, they have a definite interest in ensuring that benefits are only provided to employees who meet the criteria Arizona has set for them.
DES sends a form called UB-110 when a former employee applies for unemployment. Employees will generally qualify if they have been employed for a certain amount of time and were terminated through a reduction in force or layoff. They can only apply for benefits through their last employer, so if you receive a notice a few years after a layoff, it’s a good idea to alert DES that you might not be the last employer.
Employees who have been fired for cause—misbehavior, insubordination, violation of lawful worksite rules—are not entitled to receive unemployment payments. Neither are employees who are on strike or in a labor dispute, who are receiving pension payments from you, have refused your offer to return to work in a similar position, or who you have information that leads you to conclude they are unwilling to accept employment.
Consult with an Employment Attorney Before You Go to a DES Hearing
DES will investigate any challenges to a claim. If its investigation doesn’t settle the question to the employer’s or employee’s satisfaction, either side may request a hearing.
Hearings may appear informal and do not require either side to have an attorney present, but they are legal proceedings. An employer should at least consult with an employment attorney before attending a hearing. Employers who pay a lot of unemployment tax may find it is very helpful to have an attorney with them at hearings to get on-the-spot advice for any unanticipated questions or issues that arise.
If you are facing an issue related to unemployment benefits, contact our office for a consultation.