As many of you are aware, the deadline for states to enact UI Integrity Legislation passed in late October. From a high level overview, this legislation increases the employer’s responsibility for claims processing and reporting. Likewise, the legislation will help shift the unemployment claims process away from a decision whether or not to protest and/or respond to a unique claim but instead to focus on complete and compliant reporting for ALL claims.
For this article, I would like to focus on the specific language of the UI Integrity rules and help provide definitions to the key terms all employers should now understand!
Key Terms in UI Integrity Legislation
First off, what is the key UI Integrity language from Section 252 of the Federal Trade Adjustment Assistance Extension Act of 2011? Excerpt below:
States must not relieve employers of benefit charges to their unemployment tax account when both conditions exist:
1. UI benefits were improperly paid due (in part or in whole) to Employer’s failure to respond timely or adequately to the agency’s request for claim detail.
2. Employer has established a pattern of failure to respond timely or adequately to agency requests for claims info.
Real World Costs for Employers
What does the legislative language mean for employers in real terms? For prohibiting the relief of benefit charges, this means employers’ unemployment accounts will be charged for unemployment claims overpayments where applicable. This typically is associated with charges paid from an employer’s UI account up until the claim is won by the employer on appeal. This would commonly reflect around 4 to 6 weeks of benefits charges. Assuming a weekly payout of $300 per claim, the additional charges to your UI account may be around $1,200 to $1,800 (or more) for each claim fitting this profile.
Next, how do we define the key elements that may cause an employer to be prohibited from the relief of benefit charges?
Failure to Respond Timely
“Failure to respond timely” is often specifically defined in a state’s UI Integrity legislation, or elsewhere by the state workforce agency. Typically, as it applies to responding to initial requests for information, it’s interpreted to mean 7-10 days from agency communication.
“Adequate response” is a more subjective term. In some cases, it is specifically outlined in a state’s UI Integrity language or elsewhere; however, in most cases it is not clearly defined or is awaiting agency definition based upon the new UI Integrity rules. Generally, it is fair to assume that “adequate” means an employer needs to respond to all specific questions and requests for information. Likewise, responses that are detailed and directly related to the specific question or request will have a greater likelihood of meeting the adequate threshold.
Pattern of Failure
Finally, what is a “pattern of failure”? In roughly half the states a pattern of failure is defined as “the greater of 2 instances or 2% of claims in the past year.” However, many states have more restrictive and difficult-to-meet standards (such as 2 instances period – regardless of whether you are a small or large employer!). Other states have left this undefined in their UI Integrity legislation; many will develop definitions going forward. You can get a quick overview of each state’s definition of “pattern of failure” in this new download from ETS.
In summary, as an employer, you need to understand the UI Integrity legislation and it’s definitions in your state(s) of operation. Based upon this new movement to higher levels of reporting and compliance thresholds, you need to determine if your organization has the processes, people and reporting in place to handle unemployment claims in this new environment. At risk are additional ongoing costs associated with non-compliance.
New ETS UI Integrity State by State Legislative Overview.
Section 252 UI Integrity Legislation in the States (click the states to read more about UI Integrity legislation in that state on the ETS Blog).
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.