As you work on your payroll and pay your payroll taxes, you may be interested to learn that the Labor Dept has just released a report noting that, over the past 3 years, nearly $19 billion in unemployment benefits were paid to recipients in error. This translates into a error rate of 10.4%.  In the one year period 7/10 to 6/11, $50.9 billion in benefits were paid out, with $5.7 billion or 11.2% paid in error.

The report implied that those states with the more complex benefit systems appeared to have higher error rates. State representatives questioned the results of the survey as they questioned what the Labor Dept classified as an error. Representatives from Indiana, for example, noted that they require all recipients to note 3 businesses where the recipient sought employment on their request for benefits. If the individual only listed 2, the survey classified that as an error, while Indiana representatives indicated that they could not in good conscious deny the individual benefits. Indiana paid out $953 million in benefits 7/10 to 6/11 paying out over $567 million in error according to the Labor Dept, or an error rate of 59.7%. It is also noteworthy that Indiana is one of 3 states that had to borrow funds from the federal government in order to fund state benefits resulting in an increase in FUTA rates for all Indiana businesses in 2010.

For the period 7/10 to 6/11, Tennessee ranked 26th in the amount of benefits paid at $539 million but ranked 7th in error rate at 17.9% or $96 million. Virginia ranked 22nd at $692 million in benefits paid and 10th in error rate at 16.9% or $116 million. (Note that Virginia businesses will probably see a reduction in their FUTA tax credit and thus an increase in FUTA rates in 2011 as a result of unemployment benefit funds borrowed from the feds in order to meet benefit payment requirements.)  North Carolina ranked 10th with $1.56 billion in benefits paid and 28th with an error rate of 10.4% or $162 million paid in error. (NC businesses are also expected to see an increase in FUTA rates due to funds borrowed.)

According to the Labor Dept,  improper payments most often occur  for 3 reasons:  When recipients claim benefits even though they have returned to work; employers or their administrators don’t submit timely or accurate information about worker separations; or recipients don’t correctly register with a state’s employment-service organization. The Dept noted it has launched a plan to monitor 6 states, including Virginia and Indiana, in order to reduce the error rate in these states.

This report should get businesses’ attention as the Federal Government is proabably about to rasie many businesses Federal Unemployment tax rate due to all the money states, some of which are noted above, have had to borrow from the Feds to cover unemployment benefits paid out. (see Advi$or article 8/23/11)