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Integrity Proposal: Controlling unemployment insurance costs

When an employee separates from your company, promptly reporting the separation information to your state's unemployment insurance agency is a basic best practice. Failing to report this information promptly can increase your unemployment tax bill. And some lawmakers would like to make failure to report separation information even more costly with financial penalties.

Unemployment Insurance Integrity Proposal details
The Bush Administration's fiscal 2008 budget includes a proposal from the U.S. Department of Labor, Employment and Training Administration known as the Unemployment Insurance Integrity Proposal. The integrity measures are designed to reduce improperly paid unemployment insurance (UI) benefits. Included in the proposal is a provision that would hold employers accountable when repeated failure to provide separation details on a claim response leads to overpayments to former workers.

Many of the changes are aimed at claimants. But other changes could be costly to you. One provision would require states to penalize an employer when benefits are paid improperly because the employer doesn't report the separation properly. In fact, any benefits paid up until a subsequent denial at the hearing level can be charged to the employer's UI tax account.

Similar legislation has been proposed at the federal level before. But this time, many states have already responded to the federal push for UI integrity with controls of their own that echo the intent of the latest federal proposals. In addition to the possible financial impact, employers can be denied interested party status and lose appeal rights. But employers can help prevent overpayments and avoid punitive consequences through diligence in supplying complete information on all UI claims.

Some of the claimant-centric elements of the UI Integrity Proposal of 2008 include methods to find and collect overpayments made in error. The states could impose a fine of 15 percent for fraud, use collection agencies to recover overpayments, and invest five percent of recovered overpayments for infrastructure improvements.

State UI agencies are also looking in other areas to reduce benefit fraud and overpayments. A recently established Directory of New Hires is available to all state agencies. The agencies can use the database to discover when claimants have landed jobs and no longer have the right to benefits.

These trends are good news. Claimant fraud raises your unemployment tax bill because it depletes the UI trust account that benefits are paid from.

But nearly 23 percent of overpayments are separation issues, which employers may be held accountable for under the provisions in the fiscal 2008 budget. Of particular concern to regulators is the inaction or insufficient information from employers at the time an unemployment claim is filed.

States feel the pressure
In recent years, the U.S. Department of Labor has emphasized the need for state UI agencies to reduce benefit overpayment percentages. A number of states have responded by imposing some form of penalty if an employer misrepresents or omits facts relating to the separation of an employee. With the federal UI integrity proposal looming, states are becoming increasingly attuned to employers habitually failing to provide complete and timely separation details.

Agencies contend that in many instances, the primary action by an employer is not occurring until the issue reaches a hearing level -- instead of the initial claim or fact-finding stage. When benefits are originally allowed and then subsequently denied at the hearing level, it results in additional work for the state. It also results in UI overpayments. And those repayments are often hard to recover. The UI integrity proposal seeks to curb this problem by keeping employers liable for benefit charges.

Ultimately, you will have a lower unemployment cost if you report promptly, and you'll reduce the likelihood of expensive and troublesome hearings.

Combating unemployment insurance issues
Overpayments -- many of which never are recovered -- come out of a state's general UI Trust account, so this becomes a "socialized" cost that is shared by all employers. If a state's trust becomes depleted, all employers may see higher UI costs in order for the account to remain solvent. This is why it is important for all organization's to use due diligence.

You can improve your separation reporting in many ways. For example, you can invest in training for managers and supervisors regarding the importance of detailed record keeping and how to handle the early stages of the unemployment process.

If you use a third party UI administrator, you can often take advantage of workshops or other learning tools that improve documentation and UI cost management. State UI agencies also offer seminars and online educational resources for the business community.

To learn more about Ceridian Unemployment Compensation Services, offered in partnership with TALX, contact your Ceridian representative.