If I terminate an employee after a 90-day probationary period, do I still have to pay unemployment insurance?
Most likely, yes. But not immediately, and possibly not ever.
Contrary to popular belief, a probationary status has no bearing on whether an employer has to pay. Whether an employer plans on having its employee work for a week, a month, or long-term, the employer is required to pay unemployment insurance on that employee and may be liable for benefits that employee later draws if he or she becomes unemployed. Aside from a very few special exceptions, employers with one or more employees (part-time or full-time) are subject to unemployment insurance laws.
Unemployment insurance, also called unemployment compensation or unemployment tax, is 100% employer funded through federal and state employer payroll taxes. The employer is required to fund an account based on a payroll tax formula. If an employer terminates an employee, the employee may be eligible for unemployment benefits, and those benefits would be paid through the funds of one or more of the employee’s previous employers.
The benefit amount to be paid to a qualifying employee and the employer’s account from which the benefits will be drawn is based on wages earned during the employee’s “base period.” Calculate the base period by first disregarding the quarter in which the employee’s claim is being filed, and then by looking at the first four of the last five quarters.
Let’s look at Bobby as an example. Bobby worked at Spaceship Center from January 2012 to June 2014. Then he started working Bottlerockets in July 2014 under a 90-day probationary period. By the end of his 90-day probationary period in October, Bottlerockets decided that Bobby was not working out and terminated him. Bobby filed for unemployment in October 2014.
To determine how much Bobby will receive, and who will pay Bobby, we look to the fourth row in the illustration above because he filed his claim in October. We disregard the quarter in which he claimed, in other words the fourth quarter of 2014, and look at the previous five quarters. Those would be: third quarter 2014, second quarter 2014, first quarter 2014, fourth quarter 2013, and third quarter 2013. The base period is calculated based on the first four of those five quarters. So, third quarter 2013 through second quarter 2014. In other words, July 1, 2013 through June 30, 2014 is Bobby’s base period.
Because Bobby worked only for Spaceship Center from July 1, 2013 through June 30, 2014, the amount he would receive in unemployment would be depend on how much he earned working at Spaceship Center, and his benefit amount would come out of Spaceship Center’s fund.
So, Bottlerockets is off the hook then, right?
Not so fast.
Suppose Bobby collects unemployment insurance from October 2014 through May 2015, and then accepts employment from Robobot in June 2015. He works at Robobot until he is terminated in August 2015. Bobby files for unemployment in August 2015. To determine his weekly benefit rate, we would perform a similar analysis to the one for his first period of unemployment after his termination from Bottlerockets. The first four of the last five full quarters in this instance would be: first quarter 2015, fourth quarter 2014, third quarter 2014, and second quarter 2014. In other words, Apr. 1, 2014 through Mar. 31, 2015.
Bobby’s unemployment insurance benefits would be calculated based on all of his employment during the base period — three months with Bottlerockets and one month with Robobot. The amount each company would pay out of its fund is determined by a pro-rata formula based on the amount of wages each employer paid during the base period. But, it is clear in this situation that Bottlerockets would end up having to pay unemployment insurance out of its fund, long after its termination of Bobby within his 90-day probation period.
Additional information on Wisconsin Unemployment Insurance can be found https://dwd.wisconsin.gov/ui201/.
Attorney Leslie Elkins contributed to this article.
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