As we sit watching Congress argue about extending unemployment a new law takes effect that will have a major impact on companies. I talked to a client the other day about a termination. Although the employee to be terminated was in the wrong they were not all that keen on denying the employee unemployment so they wanted to know what they should put on the termination paperwork. The thinking was to soft sell the reason for termination and then they would just not respond to the paperwork sent to them and the ex-employee would get unemployment and the company would take a small hit on their UI tax rate. Unfortunately due to a 2011 law that action could result in major fines and even a jail term for someone in the company.
A rider with consequences
Congress is famous; perhaps a better word is notorious, for attaching provisions to a bill that is meant to enact something else. In 2011 the Trade Adjustment Assistance Extension Act had a provision called the Unemployment Insurance Integrity Act as a subsection. According to the attorneys at Smith, Gambrell & Russell, LLP this act
“prohibits states from relieving charges to an employer’s unemployment account if the state unemployment insurance (“UI”) agency determines that: (1) the payment was made because the employer failed to timely and adequately respond to the state agency’s UI claim notice (“Notice”), and (2) the employer has an established pattern of failing to respond timely and adequately to such Notices.”
The Act requires states to assess a 15% penalty on any amount paid to someone on the basis of a fraudulent claim. The act also requires all employers to report the rehire of anyone gone longer than 60 days to the “new hire” divisions of each state. Each state was to have adopted this legislation by Oct. of 2013 and the consequences are just now beginning to trickle down to employers.
A real big deal
The reason this has become such a big deal is that the government discovered that in 2011 over $14 BILLION was paid out in overpayments, this amounts to about 11% of all unemployment that was paid out. Much of this has apparently been attributed to employers not responding to UI claim paperwork that was sent them. Naturally, and in the meantime ignore all the fraudulent claims, theft and government mistakes. Nonetheless the employers will now pay the penalties.
Under the Act if an employer does not respond to the paperwork in a timely manner (as in respond by the date specified) the employer will be charged with the claim even if the claimant is eventually disqualified. This will have the net effect of increasing the employer’s tax rate.
For those employers who are already paying the maximum rate states will have some leeway in charging higher rates and imposing penalties, both monetary and IMPRISONMENT. If you add willful violations in there it could get ugly. Third party vendors (TPAs) that handle claims for clients are also subject to these fines and penalties.
So how is an employer supposed to handle this situation? It is easy, answer EVERY claim on time and truthfully. DO NOT tell employees you will not respond to an unemployment claim. Do NOT have that written in a release anywhere. Tell the truth or tone it down if you must but make sure you respond. Since the exact nature of penalties and fines will be driven by state programs you must be aware of what your particular state has planned for enforcement of this act. Don’t stick those claims in a pile thinking they will go away, they may just rear up and bite you big time.