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The State of UI: Condition, Compliance and Cost Savings under new UI Integrity Rules

The State of UI: Condition, Compliance and Cost Savings under new UI Integrity Rules. Silicon Valley APA Thursday October 17 th 2013. meet your presenter. Ross E. Henderson r.henderson@employmenttax.com COO, Employment Technology Solutions (“ETS”)

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The State of UI: Condition, Compliance and Cost Savings under new UI Integrity Rules

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  1. The State of UI: Condition, Compliance and Cost Savings under new UI Integrity Rules Silicon Valley APA Thursday October 17th 2013

  2. meet your presenter • Ross E. Henderson • r.henderson@employmenttax.com • COO, Employment Technology Solutions (“ETS”) • President, Association of Unemployment Tax Organizations (“AUTO”) • Payroll Advisory Board Member, HR.com Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  3. ETS SOLUTIONS Technology-based Solutions Driving Compliance, Convenience & Savings for Employers • HR Tools • Verification • Unemployment Claims • Tax Consulting • On-boarding Services • Online Job Portal • Applicant Tracking Systems • Background Checks • Assessment Tools • Electronic I-9 and E-Verify Integration • Verification of Income and Employment (VOIE) • OIG Exclusion Processing • UI Claims Administration • Hearing Attendance • Bonded Service • Training Tools • Benefit Charge Audits • M&A Consulting & Credits • Tax Advisory • Hiring Credits & Incentives • Statutory Account Review • Protective Filings NEW! Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  4. Presentation Agenda • Condition of UI Nationally • Legislative Path to UI Integrity • Understanding Section 252 • Best Practices for UI Integrity:“A-C-T” • GOALS:Compliance, Efficiency & Cost Savings! • Plus: Raffle Gift!!! - $75 Sports Chalet Gift Card Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  5. UI Conditions Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  6. Condition of UI: National Focus Many States’ UI Reserves Still Insolvent State Trust Fund Solvency as of August 2013. Map taken from August 2013 SUCAP Report, based on US DOL UI data quarterly summary charts & SUCAP Reports. Red = borrowing as of 8/30/13. Yellow= less than 6 mos. of positive balances. Green = more than 6 mos. of benefits. Orange= ER-financed bond Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  7. Condition of the UI System Taxable wage bases &/or UI tax rates continue to increase. National unemployment rate: 7.3% (August 2013, BLS) National average cost per UI claim: roughly $7,703 (DOL). Assessments to UI rates • Bond expense, etc. • States using employer-financed bonds: CO, ID, IL, MI, PA, TX New legislation & enforcement for UI integrity. FUTA Credit Reduction for 19 states (2012 tax year). See states. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  8. UI System Outdated & Flawed Agency error and overcharging Employer (“ER”) accounts estimated at ~10-15%. Federal Sequester raises risk of improper accounting of benefit payments. History of ER and Employee (“EE”) abuse of the system (SUTA Dumping, excess collection). ER & Third Party Administrator (“TPA”) problems with untimely or inadequate responses for claim info. Inefficient communication & data exchange. Image credit: cassettes Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  9. UI System Outdated & Flawed Agency error and overcharging Employer (“ER”) accounts estimated at ~10-15%. - Fed Sequester accounting challenges. - UI Agency IT system challenges (CA, MA etc.) History of ER and Employee (“EE”) abuse of the system (SUTA Dumping, excess collection). ER & Third Party Administrator (“TPA”) problems with untimely or inadequate responses for claim info. Inefficient communication & data exchange. 8 Track Image Credit: Phillip Pessar Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  10. Immediate Impetus:Financial Conditions & Systemic Abuse • In 2011, the DOL estimated $14B, or 11% of all UI claim payouts, result from overpayments. UI named a “high-error” program. • DOL estimates 19% of UI benefit overpayments stem from employers' untimely response and/or inaccurate information. • States like IN, LA, AZ, CO, VA pegged with 19-43% improper payment rates. • Economic conditions since ‘08 have spiked jobless claims, drained states’ UI reserves, triggered Fed loans to states to cover UI costs. • Growing U.S. deficit/political pressure to reign in budget. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  11. Snapshot of California • Unemployment Rate (Sept ‘13): 8.9% • Trust Fund Loan (Sept ‘13); $9B • ‘13 Taxable Wage Base: $7000 • ‘13 Tax Rates 1.5% min – 6.2% max • ‘13 Projected FUTA Credit Reduction 1.20% • ‘13 Min/Max Weekly Benefit $40 - $450 Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  12. Spotlight On: UI Overpayment Data retrieved from DOL’s UI Improper Payment by State California as an Example • $403M • 26.62% • 19.87% • 2012 estimated UI improper payments in CA Agency role in overpayment error, July 2009 – June 2012 Employer role in overpayment error, July 2009 – June 2012 “Role in error” = part or whole responsibility, calculated as % of total UI claims dollars overpaid in CA Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  13. Key Legislation: UI Integrity Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  14. Key FederalUI Legislation • 2004 SUTA Dumping Act • 2011 TAAE UI Integrity (Sec. 252) • 2012 ATRA • EE SS tax return • WOTC reauthorized Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  15. 2004 State Unemployment Tax “SUTA” Dumping Prevention Act • SUTA Dumping (a.k.a. “unemployment tax avoidance”) occurs by shifting EEs to a less-taxed entity to avoid paying a higher UI tax rate. • Migration of EEs between legal entities (M&A, consolidation, etc.) may trigger time-sensitive mandatory compliance reporting – often missed! • Penalties for missing or incorrect reporting can include max UI ratings; civil &/or criminal penalties. • Read Employer’s M&A “To Do” List. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  16. 2012ATRA (American Taxpayer Relief Act ) • EE SS tax rates return to 6.2% in 2013 from 4.2% in 2012 (i.e., 2% FICA payroll tax cut "payroll holiday" not extended). • SS taxable wage limit up to $113,700 in 2013 (from $110,100 in 2012). • Extension of Emergency Unemployment Compensation ("EUC"). • Temp. extension of 100% federal reimbursement for states triggering on regular extended benefits ("EB"). • Extension of over 30 business credits, including: R&D, WOTC, EZ Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  17. 2011 Federal “TAAEA” Law:Sec. 252/UI Integrity • Follow-on to 2009 Executive Order 13520 to reduce improper UI payments. • Under TAAEA’s Sec. 252, states must not relieve ERs of chargeswhen they fail to respond timely or adequately to agency request for info. • States to develop their own definitions for “pattern of failure” (some states also defining “non-timely response”). • All states to enact UI Integrity legislation by 10/22/13. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  18. UI Integrity:Sec. 252 Points • Also provides ERs cannot collude with EE to misuse UC system. • ERs and TPAs with established pattern of non-timely response penalized more, but pattern can be as little as two instances! • ERs may be held responsible for inaction and timeliness (or lack thereof) on the part of their TPAs. • Fault means in part or in whole. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  19. State Legislation Snapshot • Some State Legislation Goes Beyond the Federal Requirement: • HI and CT legislation prohibits relief from charges after just one occurrence of late or inadequate response. • ID’s legislation prohibits relief after two occurrences. • VA law widens scope of timeframe; pattern = 4 occurrences in 4 years. • Download ETS: • “Section 252 Employer Fact Sheet” here. • “UI Integrity Law Compliance Tips” here. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  20. “Pattern of Failure" Defined (Examples) Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  21. Financial Impact Example • Case Study: • ER With 100 Separations/Yr; Classified with “Pattern of Failure.” • Benefit$ paid to claimant prior to successful Appeal by ER. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  22. Audit Alert: Inter-Agency Info Sharing • Fed & state sharing info, data mining, creating cross-agency task forces. • Questionable Employment Tax Practices “QETP” Initiative • 37 states & IRS • Facilitated by movement to electronic databases. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  23. QETP Results Through Mid-2012 • Nearly 12,000 businesses examined. • States reclassified $1.8B+ in wages and assessed $27M+ via federal data. • IRS assessed almost $23M in taxes from state referrals. • Over 107,000 workers reclassified. • Significant incentives to agencies to aggressively evaluate and audit employers. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  24. Solutions & Best Practices for UI Compliance, Efficiency & Cost Savings Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  25. DOL & state agencies collaborate on secure, electronic, standardized-format platform for UI data transfer. • SIDES E-Response: web-based for smaller ERs (limited claims). • SIDES: direct data exchange for TPAs and larger ERs, requires internal IT & $$$ for setup. • Aims to improve timeliness and completeness, reduce overpayments & erroneous charges, lower UI tax rates. • 46 states in some stage of SIDES implementation (….not CA) Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  26. UI IntegrityOversight Plan Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  27. BestPractices “ACT.” Provide information to UI agencies that is: Accurate Complete Timely Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  28. Controllable Risk FactorsContributing to UI Cost & Noncompliance • Challenge #1: Organizational Structure: • Limited infrastructure committed to UI process • Minimal or non-existent “intra-departmental” technology for seamless, timely receipt & • “effective” follow-through for every claim • Inconsistent expertise responsible for program success (turnover) = inconsistent program delivery • Lack of corporate recognition/support Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  29. Controllable Risk FactorsContributing to UI Cost & Noncompliance • Challenge #2: Training for Results • Educate invested parties (C-level, HR, Payroll, Managers….) to recognize: • Relationship between claim process & cost impact to organization • Secure/train competent charge analyst: • Match benefit year wages vs. charges • Scrutinize reports for charge irregularity • Audit charge statement to ensure accuracy • Create effective contact process with agency • Follow-through on reversing inaccurate charges Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  30. Controllable Risk FactorsContributing to UI Cost & Noncompliance • Challenge #3: Initial Claim Protest- Strong From the Start • Cost-effective elements in initial claim protest process: • Detailed system of records to collect/transmit required data • Mechanism to ensure timely response/all initial claims • “Follow-through” procedures to ensure agency compliance • Built-in “triggers” to determine needed process improvement Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  31. Critical Report Audits & Tracking • Track results/determine program compliance & process improvement initiatives • Manage/scrutinize high cost contributors • Identify strong program performers • Charge impact driver by separation mix and charge amounts • Electronic benefit charge audit system (cross-check all charges) • Ensure charge accuracy against agency tables/formulas • Tools for aggregate review & analysis of “real time” reports Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  32. UCM Plus Screenshot Here’s where an electronic solution can really help minimize your costs by delivering advanced reporting features and supporting Accurate, Complete & Timely responses to agency. This image has been redacted to protect the integrity of ETS’ UCM Plus UI Claims Management Solution. Should you wish to view a demo of the software, please contact ETS at info@employmenttax.com. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  33. UI Integrity Prep Checklist Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  34. Retro UI Review • General Evaluation • Contact ALL UI jurisdictions • Perform account balancing (per state records) – Qtr. by Qtr. rearward review. • Determine what credits found eligible for refund & if debits, found if correct. • Research for any missing / incomplete or untimely reporting on the account. • Review all M&A past 3 years. • Help reduce source of potential penalty or increased UI tax expense. Photo credit: motone Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  35. ETS Resources • ETS’UI Tips UI Integrity State Legislation Tracker How Nonprofit Employers Can Reduce UI Cost Tips on Choosing a UCM Vendor • Go here to download three pages of UI Tips from ETS. • Is Your UCM Broken? • Learn more about ETS’ UCM Plus Solution ETS Blog • Download this one page checklist to assess the state of your UI Claims Administration Go here to get ETS’ best UCM blog posts and resources in one place. Go here to learn more, and here to contact ETS. Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

  36. CONTACT ETS Questions & Requests for Presentation Slides: : Ross Henderson-COO r.henderson@employmenttax.com thank you! Torrance, CA and Guilford CT (800) 518-3874 Connect with us on LinkedIn Q&A Join ETS www.employmenttax.com Phone: +1(800) 518-3874 | email: info@employmenttax.com

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