On April 4, 2013, the state of Colorado enacted HB 1124 in response to the Federal Trade Adjustment Assistance Extension Act of 2011 (TAAEA) which included (in it’s Section 252) a mandate for states to institute UI Integrity measures designed to restore the health of the floundering unemployment insurance system. Section 252 measures are part of a larger effort by the federal government to address the growing U.S. deficit, and are specifically designed to help prevent the improper payments which have long been a drain on the unemployment insurance system.
In 2011, the Department of Labor estimated that $14 billion dollars, or 11% of all UI claim payouts, were a result of overpayments.
With TAAEA’s Section 252, the federal government has mandated the states to apply new, stricter rules and practices which place a greater burden on employers to respond quicker, respond better, be more on top of what their third party administrator (TPA) is doing on their behalf, and to be financially responsible for overpayments on unemployment claims charges whenever they hold any blame for the overpayment. Past DOL claims that 19% of UI benefit overpayments stem from employers’ untimely response and/or inaccurate information were a major impetus to hold employers accountable for these overpayments. For more information, see our earlier blog post here.
The TAAEA requires states to have UI integrity provisions in place by October 21, 2013, or risk losing the 5.4% maximum federal unemployment insurance (FUTA) credit for their state’s employers. Many of the states new laws are going into effect before the October 21st date.
About Colorado’s HB 1124
The bill requires that:
- Employer accounts be charged when an individual is erroneously paid benefits if the overpayment occurred as a result of an employer’s (or an employer’s agent’s) failure to provide timely information and the division of unemployment insurance establishes a *pattern of this behavior by the employer; and,
- Increases the penalty on fraudulent overpayments and requires 23% of the penalty to be deposited in the unemployment compensation fund and the remainder into the unemployment revenue fund.
- Also, the penalty assessed against the claimant for fraudulent receipt of UI benefits is increased to 65% (from 50%) of the overpaid UI benefit amount.
Here is the most current available UI data for Colorado:
- UI / Unemployment Rate (as of February 2013): 7.2%
- Trust Fund balance as of 4/2/13: $531,563.00
- Currently paying off employer-financed bonds used to pay FUA loan balance
- Taxable wage base in 2013: $11,300 (up $300 from 2012)
- No FUTA offset credit penalty
Colorado’s new law will take effect on August 7, 2013.
If you are an employer with operations in the state of Colorado, now is an opportune time to ensure that your in-house and/or third party administrator is prepared to address the upcoming changes as a result of the newly-passed legislation.
With this, Colorado joins the ranks of other states that have recently enacted UI Integrity legislation, including: AR, CA, HI, ID, IL, IA, KS, KY, MD, MN, MS, MT, NC, NE, NH, ND, NY, OK, SD, UT, VA, WV, and WY.
Employers in other states, be on the lookout for similar legislation soon headed your way.
How Will “Section 252” Impact You?
Download our one page Fact Sheet on Section 252 to get a better understanding of key provisions that will directly impact employers.
Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.