Should You Cut an Employee's Hours to Avoid an Unemployment Claim? Here's Why Not.

Each week, we tackle a real HR question from business owners just like you. This week, we're addressing a termination workaround that could actually put your business at more risk than it solves.

The Question:

"A fellow business owner told me I should substantially reduce the hours of employees I want to terminate so they're forced to quit and can't collect unemployment. Have you heard of this practice before?"

The Answer:

We have heard of this approach, and our advice is simple: don't do it. While it might seem like a clever workaround, it tends to create more problems than it solves.

It Doesn't Actually Work

The biggest issue is that this tactic doesn't reliably prevent an employee from filing an unemployment claim in the first place. In many cases, an employee can still qualify to collect unemployment benefits even while continuing to work under reduced hours. So the strategy often fails at its core purpose.

It Can Damage Morale

Cutting someone's hours in hopes they'll quit doesn't happen in a vacuum. Other employees notice these things, and a sudden reduction in hours can be read as a punitive move, even if that's not how it's framed. That perception can spread, creating morale issues across your team or prompting the affected employee to file a complaint with an outside agency.

The Math Doesn't Add Up

Here's the part that often gets overlooked: a single unemployment claim generally has a minimal impact on your unemployment insurance rate. That small cost is nothing compared to what it costs a business to continue employing someone who should have been let go, whether that's in lost productivity, team disruption, or ongoing HR headaches.

The Better Path

If you've documented legitimate reasons for termination, the cleanest and lowest-risk approach is to simply terminate the employee. Worries about your unemployment insurance rate shouldn't be the deciding factor in whether or when you let someone go.

The Bottom Line

Reducing hours to engineer a resignation is a workaround that rarely works as intended and can introduce new risks around morale and compliance. If termination is the right call, and you have the documentation to support it, it's usually best to make that call directly.