Over a three-week run spanning mid-March to early April, nearly 17 million Americans filed for unemployment – and it’s no secret the restaurant industry, home to some 15.6 million workers pre-pandemic, took a particularly heavy hit.

As restaurants were forced to layoff employees amid mass shutdowns and dwindling sales, many hard-luck staff members pursued unemployment benefits. While individual states began paying out benefits to eligible candidates, restaurants were able to escape any immediate financial burden. But a pinch is coming.

Here’s why: unemployment benefits are charged to the employer tax account, which results in increased tax rates for a small business. The number of approved unemployment claims filed against an employer can – and almost assuredly will – result in an increased tax rate, as businesses will need to put their proportionate share of payments into the benefits pool.

“In the long term, [the number of staff members applying for unemployment] will likely raise the employer’s unemployment rate,” explains Michael Elkins, partner and founder of MLE Law, a full-service labor and employment and business law firm located in Fort Lauderdale, Florida. “Employers generally pay a tax for unemployment as part of their regular payroll. As more claims come in, the employer’s rate may increase.”

For restaurants, who will be attempting to find their footing in a post-pandemic world dealing with a fragile economy that hampers both consumer confidence and discretionary spending, this is another potentially daunting proposition – and one that will place added financial burdens on restaurant operations.

“These increased rates can last for multiple years and cost a business thousands of dollars,” explains Nathan Wade, managing editor for WealthFit, a financial education blog dedicated to curating advice on investing, entrepreneurship and money.

So, what’s a pizzeria operator to do, especially one facing a long, bumpy road to recovery?

First, understand the realities.

For better or worse, the unemployment benefits systems tilts in the favor of dismissed employees with funds explicitly set aside for employees who did not lose their job due to egregious misconduct or inappropriate behavior, says Charles Krugel, a management side labor and employment attorney based in Chicago.

“Consequently, from a cost versus benefit perspective, there’s little benefit for an employer to contest firings due to layoffs or furloughs because the odds are heavily in employees’ favor,” Krugel says. “Generally, it’s when an employee misbehaves or refuses to follow workplace rules that they’re denied unemployment benefits.”

In the case of layoffs sparked by COVID-19, most restaurants will not have reasonable grounds to contest claims. The unemployment system, after all, exists for such star-crossed scenarios.

Second, take action.

Whenever restaurant owners receive an unemployment claim notice, they need to act. If solid employees were dismissed because of COVID-19 staffing reductions, then contesting a claim is likely futile. If, however, an employee was dismissed for poor performance, then restaurants might contest those claims.

COVID-19 or not, this is why restaurant owners need to stay on top of their employment documentation, specifically accurate and consistent time-keeping records as well as discipline and termination records. Such documentation can help businesses successfully contest claims.

“When documenting, businesses should write up incidents as soon as they occur and focus on the W’s,” Krugel says. “That is, document who was involved, who witnessed what, where events occurred, when events occurred, what happened, why do you think it happened and what others’ impressions or reactions were.”

Restaurant management should also provide clear evidence of workplace rules – an employee manual, for instance – and note the circumstances surrounding any previous warnings.

Third, monitor unemployment claims.

Krugel suggests companies review their unemployment claims regularly. Management should monitor who’s receiving unemployment compensation and how much is being paid out to ex-employees. Companies might also compare the amount of time and money devoted to contesting claims against the funds directed into the larger unemployment pool.

“If money can be saved by not contesting too many claims, then perhaps it’s best to let those claims go,” Krugel acknowledges.

Furthermore, businesses should stay on top of unscrupulous ex-employees who file fake claims while working other jobs. Bringing such unseemly actions to light helps a restaurant protect its bottom line.

Finally, take a long-term view.

The surest path to limiting unemployment claims is to tighten up hiring practices as much as possible and to focus on turnover-reducing efforts. Making thoughtful institutional or cultural changes can strengthen service and reduce unemployment claims.

More long term, Brian Davis, president at BizCentral USA, an Orlando-based small business development center, urges restaurants to join with industry colleagues and other like-minded allies to lobby state legislatures for better government-backed assistance.

“The COVID-19 pandemic has created an economic crisis on a never-before-seen scale and presenting your hardships to your representatives can help ensure that effective legislation is passed in your favor, whether it takes effect this year or this decade,” Davis says.

Should a restaurant discourage its employees from filing for unemployment?

Many restaurants were forced to lay off valuable team members amid the COVID-19 pandemic, not unlike what might happen when a restaurant closes due to a natural disaster, fire or other unexpected cause.

Strictly from the financial perspective, restaurants benefit when former employees do not file unemployment claims. If ex-employees do not pursue unemployment, after all, a business’ unemployment tax rate doesn’t rise – a definite win for the restaurant’s bottom line.

As tempting as it might be for restaurants to preserve any capital and lighten their financial obligations amid a crisis event, Brian Davis of BizCentral USA cautions owners against opposing unemployment for their staff. In fact, he suggests employers in such unique situations research the unemployment process themselves and assist employees in their benefits filing by providing necessary documentation or evidence.

“You want to protect their livelihoods and wellbeing, first and foremost, so help them in any way you can to apply for unemployment benefits,” Davis says. “Assisting employees in this time, even while laying them off, will help you maintain good faith so that you can re-hire them as soon and as amicably as possible.”

Daniel P. Smith  Chicago-based writer has covered business issues and best practices for a variety of trade publications, newspapers, and magazines.