Ever since it was established during the Great Depression, the Unemployment Insurance (UI) program has been a key tool for government responses to economic distresses. However, despite being one of the country’s largest benefit programs, state unemployment offices struggle with fraud and billions of dollars are lost through improper payments.
In 2011, President Obama signed the Unemployment Insurance Integrity Act as part of the enactment of the Trade Adjustment Assistance Extension Act of 2011 (TAAEA). The purpose of the Act was to improve the integrity of the UI system by ensuring that only those individuals who are entitled to UI benefits receive them. It introduced new obligations and penalties for state agencies, claimants, and employers thus putting a significant emphasis on the importance of UI Integrity compliance.
UI Integrity Act
In the past, many employers, particularly those already paying UI taxes at the maximum rate, did not contest UI claims, did not respond, or provided minimal information, therefore allowing individuals who were not actually eligible for UI to receive benefits. The UI Integrity Act aims to restrict overpayments, facilitate accurate and informed state decision-making regarding eligibility for UI benefits and shift the responsibility for UI Integrity compliance to employers.
It requires employers and their agents to timely and adequately respond to a state UI agency’s request for information regarding the claimant, regardless of whether the employer believes the individual is entitled to benefits. It also prohibits states from relieving employers of charges to their unemployment tax account:
- When a payment was made because the employer or an agent failed to respond timely or adequately to the request from the unemployment insurance division for information relating to the claim, and
- If the employer or agent has established a pattern of failing to respond timely or adequately to such requests, even if it is later decided that the claimant is disqualified for benefits.
The Act also requires states to enhance penalties for individuals who submit fraudulent claims and to revise the timing of new hire reports.
If an employer or its agent establishes a pattern of failing to timely or adequately respond to a state agency’s requests for information regarding a claimant’s UI eligibility, the employer’s UI account is charged for the benefits even if the claimant is eventually disqualified. The charging will continue until the appeal decision is issued and the erroneous payments cease. Given that this may affect the employer’s experience rating and tax rate, it is critical that they ensure UI Integrity compliance.
New Efforts to Improve the Integrity of Federal Payments
Improper payments have been a years-long issue in the federal government and data released by the Office of Management and Budget estimates that between the fiscal year 2020 and fiscal year 2021, the governmentwide improper payment rate rose from 5.6% to 7.2%. This was mainly the increase of improper payments in the federal-state unemployment insurance programs, caused by the pandemic-induced recession.
To address a record-high number of improper payments in federal spending, House lawmakers on the House Oversight and Reform Committee’s Subcommittee on Government Operations announced new legislation. It would create a program integrity office to oversee agencies’ efforts to track fraud, waste and abuse in their program spending and help agencies that are struggling with improper payments to make corrections. The legislation would also emphasize the use of high-quality data and the modernization of information technology to better scrutinize spending in high-risk federal programs.
Apart from this, the Biden administration is working to help states with their unemployment insurance systems and improve oversight. The American Rescue Plan Act authorized $2 billion for grants to help prevent identity theft and upgrade outdated technology systems, and there is a new data-sharing agreement among states and the Labor Department’s Inspector General.
Ensuring UI Integrity Compliance
UI Integrity Act was designed to reduce overpayments and incentivize employers to participate in the process of improving the UI system. In light of a recent increase in improper payments, employers should pay attention to UI Integrity compliance and ensure responding in a timely and accurate manner to information requests by state UI agencies.
To do this effectively, they should be informed about UI Integrity compliance requirements in each state in which they operate and make sure to maintain proper documentation as the best defense against unwarranted unemployment insurance claims. Furthermore, employers’ first protest or response is usually their best opportunity to win. Therefore, they need to make sure to include all available evidence to support the protest.
Not responding to requests for information from state agencies or hearing officials is not an option for employers who aim to ensure UI Integrity compliance. Another proactive approach that simplifies unemployment claims management, minimizes risks and reduces administrative burden is an unemployment cost management solution. This provides employers not only with expertise and knowledge of the unemployment system but also with comprehensive administration of the entire process resulting in saving valuable time and preventing unemployment costs.