Unemployment Insurance Integrity: A Focus on Compliance

Unemployment Insurance Integrity: A Focus on Compliance

By: Greg Good, Director, Product Management, Equifax


In 2009, with unemployment rates nearly double historical norms, Unemployment Insurance (UI) benefit payments increased significantly and reached an annual high of nearly $80 billion. As the effects of this recent recession continue to impact unemployment reserves, a renewed focus has ­been placed on the integrity of the UI system as states look to replenish insolvent trust funds while minimizing benefit overpayments moving forward. 


A New Federal Mandate

To improve the integrity of the UI system, and reduce the prevalence of improper payments, a federal mandate was recently developed to address the timeliness and accuracy of employer response to state requests. The Trade Adjustment Assistance Extension Act (TAAEA) of 2011 provides for a statutory subsection in the Federal Unemployment Tax Act (FUTA) which mandates that state UI agencies prohibit relieving employers of benefit charges to their unemployment tax account when both of the following scenarios exist:


  1. UI benefits were improperly paid because the employer, or their agent, was at fault for failing to respond in a timely or adequate manner to the agency’s request for information (RFI) relating to the unemployment claim.
  2. The employer or agent has established a pattern of failing to respond to such requests in a timely or adequate manner.


Because the federal UI mandate is open to state interpretation, additional definitions are as follows:

  • Timely response – A “timely response” has been interpreted by most states to be in the range of 7 to 10 days (similar to previous guidelines).
  • Adequate response – While it is clear that the information must be provided in response to every question in the RFI relating to the claim (as demonstrated through the SIDES framework), the exact level of detail and documentation required to ensure compliance is more difficult to define. Both employers and their Unemployment Cost Management providers will need to monitor state determinations, including the level of detail that prompts successful appeals, in order to develop a reasonable understanding of state requirements moving forward.
  • Pattern of failure – The criteria for sustaining a “pattern of failure,” on the other hand, has been more distinctly defined with many states interpreting this as the greater of two or more instances or two percent or more of claims within the prior year.


The New Employer Penalties

This new legislation requires all states to prohibit the relief of unemployment benefit charges resulting directly from an employer’s (or their agent’s) pattern of failure to adequately respond to state UI information requests. Under these new requirements, employers are expected to improve the quality of information provided to state unemployment agencies at the front end of the UI claim process, rather than waiting until after the initial determination is rendered to perfect their response.


Even if an employer is able to reserve an unfavorable determination at an unemployment hearing, the consequences of not providing sufficient details up front is a loss of benefit charge relief from the date of initial charges through the date of successful appeal or hearing. Should this increase in benefit charges negatively impact employer UI tax rates moving forward, the monetary impact could be significant.


However, the new UI Integrity legislation does not specifically indicate that employers lose appeal rights due to insufficient response. Therefore, employers may still (in most states) appeal an unfavorable claim determination and potentially eliminate the remainder of the charges. However, as the TAAEA does allow states to increase the severity of the penalties for non-compliance to UI related information requests, several jurisdictions have taken it upon themselves to legislate the loss of appeal rights to employers who provide an insufficient claim response. As a result, employers in these states may lose the opportunity for claims relief for the full duration of the unemployment claim.


New Perspective on UI Compliance

In compliance with this federal initiative, states are shifting increasing responsibility for UI Integrity to employers by enforcing more stringent penalties for non-compliance. Employer response to unemployment claims is no longer perceived as a choice, but as a requirement that must be fulfilled in order to remain compliant with the new state regulations. Specifically, the employer perspective toward response to claims has transitioned in the following manner:


  • In the Past: Employers often made a choice between responding or not responding to an unemployment claim (i.e., while it was always technically required, a response was only considered worthwhile if the employer felt that benefits should not be paid to the claimant).
  • Moving Forward: Employers are required to respond to all claims in order to not only remain in compliance with new state regulations, but now to avoid real financial repercussions as well.


While employers have historically been inclined to respond (i.e., protest) only to those unemployment claims that were considered inaccurate, they will now be required to respond to all claims, regardless of their perceived legitimacy, in order to remain compliant with emerging state regulations and minimize their financial exposure.


A Successful Strategy Moving Forward

With compliance functioning as a critical element of the unemployment claims management process moving forward, there are several proactive strategies for conforming to these new regulations while preventing unnecessary benefit payments.


Rapid and accurate claims response: Providing timely, accurate, and complete documentation in response to all claims is critical to not only avoiding non-compliance penalties, but to ensure proper determinations and minimize improper payments as well. The use of the State Information Data Exchange System (SIDES), which is now available in the majority of states, expedites delivery of the critical claims information online while simultaneously supporting data integrity.

  • Easy access to employee data and case history: The availability of key data, notes, and documentation, which is needed in response to state requests regarding unemployment claims, ensures that employers are able to provide required information in a timely and accurate manner.
  • Comprehensive workforce data reporting and benchmarking: Robust reporting of unemployment claims management results, such as protest rates, win rates, and compliance, can help employers identify opportunities for improvement while assessing performance in comparison to industry standards.
  • Comprehensive employee training: It is critical that HR personnel, as well as any managers involved in the hiring and termination process, are provided with training regarding how to most effectively take the required steps for employee review, document cases of misconduct, and respond to requests from state agencies.
  • Updating state databases: By responding promptly to Wage Earning Verification requests and reporting new hires and re-hires to the states (including the National Directory of New Hires within 20 days of hire), employers ensure that state agencies are provided with data necessary for accurate unemployment eligibility determinations.


Adherence to these guidelines will not only reduce benefit overpayments, but will help improve state agencies’ efficiency in administering the process while ensuring that employers’ financial exposure (in light of new compliance legislation) is kept to a minimum.


About Equifax Workforce Solutions

Equifax Workforce Solutions (formerly TALX), an Equifax business unit, is a leading provider of human resource, data, analytics, and verification services. Headquartered in Atlanta, Equifax operates or has investments in 18 countries and is a member of Standard & Poor’s (S&P) 500 Index. For more information, please visit: www.equifaxworkforce.com