Missouri employers face higher taxes for unemployment insurance

In November, Missouri employers will be sent another notice that they will be paying more in unemployment insurance taxes in 2012. Missouri’s UI trust fund is currently running more than $569,342,298 in the red and loans taken from the federal government have triggered a reduction in FUTA tax credits.

Currently, states are given FUTA Tax Credits to offset the costs of unemployment insurance systems. The credit can be reduced if a state has an outstanding loan balance on January 1st of two consecutive years and has not repaid the required amount by November 10th of the second year; employers in that state are at risk of losing a portion of their FUTA tax credit for that year. The credit is reduced by 0.30 percent (or $21 per employee) for each year the payment remains outstanding beyond the second year of the loan. In the first year of the state FUTA tax credit loss, the effective FUTA tax rate increases from 0.6 percent to 0.9 percent and increases 0.3 percent each year until the loan is repaid. Missouri’s current rate is 1.20 percent but could be increased to 1.50 percent for 2013, and 1.8 percent for 2014 (or $84 per employee.)

The loss of the FUTA tax isn’t the only pain employers are feeling to their bottom line. Interest on borrowed funds is also compiling at .0863299 percent, or $11.22 per employee. To date employers have paid over $21 million this year.

With so many citizens out of work, the UI system is stretched to the max, but what about false claims and fraud? Where does Missouri fall in terms of these problems?

In 2011, the Missouri Division of Employment Security made more than $20 million in benefit overpayments because of nearly 15,000 known acts of fraud. The division was able to recover more than $1.5 million in penalties and nearly $19 million in restitution.

Overpayments could be for a myriad of reasons. The top three reasons for overpayments could be for people who aren’t actively searching for a job, those who were fired or quit voluntarily, or those who continue to file claims even though they’ve returned to the workforce. All of these reasons would render the person ineligible for benefits.

A common scam all over the country is convicted criminals defrauding the system by using someone to file claims for them to continue receiving benefits while they are serving time in prisons or jails. There have also been instances of claims filed for deceased persons.

Funds can be recovered in several ways including taking the claimants to court, setting up payment plans, garnishing wages or deducting funds from federal income tax returns.

Several hearings have been held in the Missouri Legislature to address the issue of UI fraud, and the Missouri Chamber has given a presentation showing the problem and possible solutions and has been supportive of proposed legislation to fix the problem.

During the 2012 general assembly, SB 816, sponsored by Sen. Will Kraus, would have redefined “misconduct” for which an employee may be disqualified from unemployment benefits. The bill was passed out of committee but was never debated on the Senate floor.

Current law states that misconduct requires a wonton or willful disregard of the employer’s interest or culpable negligence. Kraus’ bill would have changed that standard to a conscious disregard of that interest or culpable carelessness or negligence, and includes conduct that occurs both at the workplace and during business hours. Chronic absenteeism, a willful and deliberate violation of a state standard that would require an employer to lose its license, and certain rules violations also qualify as misconduct.

The Missouri Chamber of Commerce and Industry championed this legislation and has testified on behalf of similar bills. Tracy King, vice president of governmental affairs weighed in on SB 816 during the hearing.

“Common sense dictates that some of these behaviors would be considered misconduct,” King said. “However, these behaviors are somehow being rewarded through the appeals process and court decisions. This raises the costs on all employers, who fund the system, and is a contributing factor to the current insolvency of the trust fund. This makes the employer community angry and distrustful of the system. There are times when an employee is truly unemployed through no fault of their own, and ensuring they have the benefits they need to help them back into employment is the right thing to do.”

The Missouri Chamber has been working with legislators to find a fix to the problem of abuse within the unemployment system, which includes this bill. For more information about unemployment benefits and insurance, please contact Tracy King, vice president of governmental affairs at tking@mochamber.com or by phone at 573-634-3511.

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