Employers may soon face new requirements in the Department of Labor’s efforts to reform the unemployment insurance program. On Monday, the Department announced that it had introduced legislation designed to combat fraud and reduce the overpayment of unemployment insurance benefits. According to Secretary of Labor Hilda L. Solis, more than $11.4 billion in unemployment benefits were erroneously paid in 2009 alone. The legislation, titled the Unemployment Compensation Integrity Act of 2010, is part of a larger initiative to reduce “improper payments” within federally administered programs, which includes a $25 million budget to crack down on “misclassification” of independent contractors. Solis claims the legislation “would give states the additional resources and tools they need to guarantee that only those who are eligible for benefits receive them and employers who defraud the system pay their fair share of taxes.”

If enacted, the legislation would allow states to use a portion of recovered unemployment compensation overpayments and monies collected due to employer fraud or tax evasion – including misclassification of employees – to deter and detect fraud, abuse, and overpayment of UI benefits. States would be required to assess a penalty of at least 15 percent of amounts overpaid when the overpayment is due to claimant fraud. Employers would be given incentives to provide “timely, accurate and complete” information about the reasons for an employee’s separation from the organization so states can more easily determine whether an applicant for unemployment benefits is qualified. The act would also require employers to report first day earnings for all new hires to a National Directory of New Hires, which would assist in detecting those individuals who return to work but continue to collect unemployment compensation.

The Department of Labor estimates that this legislation has the potential to save over $1.6 billion over the next ten years. To learn more about the Department’s plans to reform the UI program, read Assistant Secretary Jane Oates' statement before the Senate Finance Committee on April 14, 2010. To prepare for these potential changes, employers should review their UI practices and ensure that their workers are properly classified.