Unemployment insurance overpayments occur when unemployment benefits were paid out to a claimant who was not entitled to receive them. Given that they can affect employers’ tax rates, it is necessary to understand common causes of unemployment insurance overpayments as well as state laws relating to detection, establishment and recovery of overpayments.
Reasons for Unemployment Insurance Overpayments
Generally, unemployment insurance overpayments fall into two categories, fraud and non-fraud, and state laws differentiate between the treatment of non-fraudulent and fraudulent cases. U.S. Department of Labor (DOL) guidance defines two different types of fraud occurring within the UC program:
- Eligibility fraud occurring when benefits or services are acquired as a result of false information being provided with the intent to receive benefits for which an individual would not otherwise be eligible; and
- ID fraud occurring when one person acquires and uses the identifying information of another person in order to illegally receive benefits. The fraud can happen either at the time of UI application submission or by changing key user data like bank account information after a claim has been established. In addition to this, synthetic identity fraud refers to a combination of real and fake information used to create false identities.
Many unemployment insurance overpayments are the result of simple mistakes and misunderstandings, changing federal and state regulations or confusing and unclear state agency procedures and guidance. According to DOL 2020 Benefit Accuracy Measurement (BAM) report, causes of unemployment insurance overpayments may also include:
Misreported Benefit Year Earnings
Misreported benefit year earnings (BYE) refers to a failure of claimants to report new income or work. According to the 2020 BAM report, misreported BYE was one of the nine primary causes of unemployment insurance overpayments. BYE errors accounted for about 37.4% of all the overpayments and intentional misreporting of BYE was the cause of 60.8% of all fraudulent overpayments.
Inadequate Work Search Activity
Inadequate work search activity refers to the failure of claimants to actively seek work and record their efforts in accordance with state law. Work search activities may include applying for a job, going to an interview, creating a resume, or registering with a temporary work agency, among other activities. Specific work search activity requirements vary by state and generally require individuals to make a minimum number of work search contacts per week with employers reasonably expected to have suitable openings.
Unemployment insurance overpayments happen when claimants are initially determined to be eligible for unemployment insurance benefits but later information reveals a disqualifying employment separation. Therefore, separation issues refer to inadequate or inaccurate reporting of a claimant’s reason for leaving his or her last job. Disqualifying separation varies by state and generally refers to situations where a worker is discharged due to willful and deliberate misconduct or quits without good cause attributable to the employer.
Ability and Availability to Work Issues
Ability and availability to work issues arise when claimants inaccurately report on their ability to take jobs offered to them while they claim unemployment insurance benefits. Claimants cannot refuse suitable offers of work as workers who are unable or unavailable to accept a suitable job offer are not eligible to receive unemployment payments.
Base Period Wage Issues
Base period wage issues refer to a failure of claimants or employers to accurately report base period earnings. Such earnings are insured wages paid to a worker during a one-year base period that determines the unemployment insurance benefit amount a claimant can receive. In most states, the base period includes the first four of the last five completed quarters before the date a worker first applies for unemployment insurance.
Employment Service Registration Issues
Employment service registration issues occur due to the failure of claimants to register for such services while receiving unemployment insurance benefits. This type of cause of unemployment insurance overpayments usually occurs in states that require individuals to register with the state’s employment service system to claim unemployment insurance benefits.
Severance, Vacation, Social Security and Pension Pay Issues
Severance, vacation, Social Security, and pension pay issues refer to unemployment payment errors that occur when claimants inaccurately report or fail to report income from severance, vacation, Social Security, or pensions.
Dependent Allowance Issues
Dependent allowance issues occur when claimants inaccurately report eligibility for additional unemployment insurance payments intended to support dependents. Dependent allowance issues usually happen in states that offer additional unemployment insurance stipends for claimants with dependents.
Responding to Unemployment Insurance Overpayments
There are different approaches for states to deal with unemployment insurance overpayments, depending on how and why the overpayment occurred. Many states provide waivers for overpayments that are not fraudulent or if the overpayment is not the fault of the individual. States also have a variety of methods to recover overpayments, including offsetting the value of future benefits and tax refunds. In addition to this, some states permit civil action to recover overpayments while others charge interest on overpayments.
Despite measures taken to reduce unemployment insurance overpayments, state agencies can make errors and charge employers incorrectly for unemployment benefits. For many employers, these overpayments can have significant financial consequences and their tracking causes additional responsibilities. However, outsourcing unemployment insurance administration to industry experts allows employers to efficiently deal with unemployment claims in the cheapest way possible without monitoring different unemployment regulations and procedures, leaving them with time and resources to focus on core business functions.