BenefitsEmployee Engagement

The Feds’ Integrity Proposal: Cutting UI Costs for Everyone

The following best practices can help you avoid paying more than you should in unemployment insurance benefits.

by Joyce Dear

Promptly reporting employee separation information to the state unemployment insurance agency is a basic best practice. Failing to report this information in a timely fashion can result in increased unemployment tax bills. Some lawmakers would like to make failure to report even more costly—by adding financial penalties.

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

Many changes are limited to claimants. However, businesses can be significantly impacted by the proposed integrity changes as well. One provision would require states to penalize an employer when improperly paid benefits result from the employer’s failure to submit timely and complete separation information at the time the claim is processed. Although this federal proposal has not yet become law, many states have already implemented controls that echo the intent of the UI integrity proposal. In addition to loss of non-charging, employers can be denied interested party status and lose appeal rights. Employers can help prevent overpayments and avoid punitive consequences through diligence in supplying complete information.

Some of the claimant-oriented elements of the UI Integrity Proposal of 2008 include methods to find and collect overpayments made in error. These methods of addressing overpayments include imposing a fine of 15 percent for fraud. Collection agencies can be used 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. These 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 for employers.

However, the second leading cause of overpayments—nearly 23 percent—relates to separation issues. Under the provisions in the 2008 Proposal, this is where employers can be held accountable. 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. States are becoming increasingly attuned to employers habitually failing to provide complete and timely separation details. For instance, when benefits are originally allowed and then subsequently denied at the appeal (hearing) level, it not only causes additional work for the state, it also results in UI overpayments, many of which are never repaid or recovered. The UI integrity proposal seeks to curb this problem by keeping employers liable for any benefit charges in all states.

Overpayments that are not recovered can impact all employers, not just the separating employer. This is largely because overpayments are taken out of a state’s general UI Trust account. If a state’s trust becomes depleted, all employers may see higher UI costs in order for the account to remain solvent. This is a socialized” cost that is shared by all employers. It is extremely important for employers to fully engage in claim matters from the onset.

Remember—prompt separation reporting in response to a claim helps everyone. Ultimately, your organization and the entire business community benefits. Employers can and should control unemployment costs, regardless of the outcome of the UI integrity proposal.

There are many ways to improve separation reporting. You can invest in training for managers and supervisors. This has the added benefit of decreasing exposure and liability. State UI agencies offer seminars and online educational resources. Third-party UI administrators and professionals are available and are often a great source of workshops and other learning tools. You will find quickly that appropriate training is a wise investment and always time well spent.

Tags: Benefits, Engaged Workforce, HRO Today Global

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