Record Overpayments Prompt Penalties for Employers and Their Unemployment Vendors

Due to the number of unemployment overpayments recorded nationwide, the federal government has mandated state agencies to levy significant penalties on employers and their agents for the mishandling of claims. The overpayments, totaling billions of dollars, are the result of claim processing errors and omissions made by employers and/or their third-party administrators (TPAs). Therefore, employers and TPAs must ensure that claim response protocols meet new standards associated with timeliness and accuracy. A single failure to do so, or a pattern of failures, will incur loss of account credits or repayment of funds. In addition, states have been given the ability to assess monetary and criminal penalties against employers and agents.

Arizona, Colorado, and Wyoming passed new laws in their 2013 legislative sessions to bring their unemployment systems in compliance with these new federal requirements.

Arizona’s HB 2173 prohibits the Department of Economic  Security (DES) from relieving an employer’s account of charges relating to an erroneous unemployment benefit payment if it determines a) the erroneous benefit payment was made because the employer or an agent of the employer failed to timely or adequately respond to a written request for information relating to a claim for unemployment compensation, and b) the employer or the employer’s agent has established a pattern of failing to timely or adequately respond to requests. A pattern of failing is determined by reviewing the immediate 12-month prior period, and is established by five or more failures or failures in more than 5 percent of the number of requests, whichever is greater. For an agent, an established pattern of failure is specific to the individual employer’s account. This law is effective October 21, 2013.

Colorado’s HB 13-1124 requires that employer accounts be charged when an individual is erroneously paid benefits if the overpayment occurred as a result of an employer’s failure to provide timely information and the division of unemployment insurance establishes a pattern of this behavior by the employer. The new law also increases the penalty on fraudulent overpayments and requires 23 percent of the penalty to be deposited in the unemployment compensation fund and the remainder in the unemployment revenue fund.  This law is effective August 7, 2013.

Wyoming’s SF0073 requires benefits paid erroneously to be charged to an employer’s account if the payment resulted from the employer’s failure to timely provide requested information to the division, and if the employer has established a pattern of failing to provide timely or adequate information to the division.  The law also increases the penalty for fraudulently received benefits to 20 percent of the overpayment, with 75 percent of that used to replenish the unemployment trust fund account and the balance of penalties used for administrative costs of overpayment collection, fraud investigation, and educational programs.  This law became effective July 1, 2013.

Employers are urged to analyze their processes to determine their risk.