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Unemployment Law Hikes Penalties for Employers

Volume 2, Issue 1
January 15, 2014
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Unemployment-LawEmployers who routinely brush aside the unemployment claims they don’t intend to contest may want to rethink that strategy in light of legislation that could subject them to added costs , the law firm of Smith, Gambrell & Russell warns.

New penalties for failing to provide a timely response to such claims may seriously affect employers’ bottom lines and even subject them to criminal liability.

The 2011 Unemployment Insurance Integrity Act, which prohibits states from relieving charges to an employer’s unemployment account if the state unemployment insurance (UI) agency determines that the payment was made because the employer failed to timely and adequately respond to the state agency’s UI claim notice, and the employer exhibits a pattern of failing to respond.

The Act requires states to assess at least a 15% penalty of the amount of overpaid UI compensation to any individual who committed fraud.

All states were required to implement the Act by October 21, 2013, but many employers are just beginning to feel the effect of this legislation.

The Act is meant to remedy the relatively common practice of employers failing to respond to UI notices, accepting charges to their reserve accounts when a former employee applies for UI benefits.

Prior to the Act, when the employer did not provide thorough information to the agency in a timely manner, it became difficult for the agency to make an accurate determination of whether the employee was eligible to receive UI benefits.

According to one report from the U.S. Department of Labor, nearly $14 billion in unemployment overpayments were distributed in fiscal 2011 – which was about 11% of all unemployment benefits that were paid out.

While much of this overpayment can be attributed to fraudulent reporting by claimants and state agency errors, it is the employers who will suffer the brunt of these new restrictions and penalties.

Employers who do not adequately respond to a state agency UI Notice in a timely fashion will be charged for the benefits even if the claimant is eventually disqualified. The employer’s UI account will continue to be charged until a decision is rendered on appeal.

For employers already paying a state’s highest UI tax rate, a failure to respond to a notice in the past generally didn’t result in a higher UI tax rate. As a result, employers had no incentive to respond to such notices where they were already paying the maximum rate and did not intend to contest the UI claim.

However, under the Act individual states can impose stricter penalties and standards. In Florida, for example, an employer may be denied relief from the charges after a single incident of an inadequate or untimely response is found to have occurred.

Thousands in Potential Fines

Other states imposed monetary fines and possible jail time for employers who refuse to comply with the state implementing legislation, in addition to precluding relief of the employer’s unemployment account from benefit charges.

California legislation permits a fine ranging between two and 10 times the weekly benefit amount, to a maximum of $4,500, where an employer willfully makes a false statement or willfully fails to report a material fact concerning the employee’s termination.

Smith, Gambrell & Russell attorneys advise employers to should familiarize themselves with their state laws implementing the Act, including any timing and penalty provisions, and apply procedures to deal with every unemployment claim, including those that they do not intend to contest.

The requirements also apply to employers’ agents, including payroll services or unemployment cost management services. You should ensure these agencies are responding to the notices in an adequate and timely manner, the attorneys said.

If necessary, change release agreements to state you will respond promptly to any claim for UI benefits.

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