Over the past two years, Kermit Stone, the controller of Hilton Company, has been concerned that the company has been paying a large amount of money for state unemployment taxes. On reviewing the unemployment file with the head accountant, Deborah Murtha, he learns that the companys tax rate is near the top of the range of the states experience-rating system. After calling the local unemployment office, Stone realizes that the turnover of employees at Hilton Company has had an adverse effect on the companys tax rates.

1) Explain how employee turnover affects a companys unemployment tax rate.

In addition, after consulting with Murtha, he discovers that the eligibility reports that come from the state unemployment office are just signed and sent back to the state without any review. The eligibility reports are notices that an ex-employee has filed a claim for unemployment benefits. By signing these reports blindly, the company, in effect, tells the state that the employee is eligible for the benefits. Any benefits paid are charged by the state against Hilton Companys account. Stone is convinced that the rates the company is paying are too high, and he feels that part of the reason is the blind signing of the eligibility reports.

2) Is Stone correct about that blindly signing the eligibility reports is negatively affecting the companys unemployment tax rate?

3) Stone wonders what other steps the company can take to lower its contribution rate and taxes. What recommendations can you give Stone that might help reduce the burden that the unemployment compensation taxes are leveling on Hilton Company