Businesses pay up for federal loan to Colorado to pay unemployment benefits

Business owners in Colorado who’ve paid at least one unemployment claim face an unexpected bill in July. The bill, from the State of Colorado Department of Labor and Employment, is purportedly to help the state make the first interest payment on the $346 million the state borrowed from the federal government last year. A letter from the Department of Labor and Employment has been sent to about 35,000 employers, who will realize an average bill of $340.  Collectively, they’ll pay $11.9 million in interest payments.

The state anticipates businesses will receive a bill once a year until the loan is paid off, according to a spokeswoman from the office of government, policy and public relations for the state labor department.

Already faced with a soft economy and declining profits, many companies might find irony in the fact that they’re forced to pay interest on a loan they never asked to take, making expansion of their workforce more difficult. The scenario comes on the heels of news conferences in which lawmakers ask private businesses to create new jobs.

“I think it’s ridiculous,” said Lisa Mullen, co-owner of Rocky Mountain Sanitation in Mesa County. “The feds have exceeded the unemployment benefits, and we’re supposed to pay.”

For Mullen and any business owner who’s paid an unemployment claim in the past, the bills to come in future months could be even more shocking.

“It’s much worse than they think,” said Angela Hildebrand, a certified public accountant and president of operations for Autopaychecks in Grand Junction. Her firm, which administers payroll for businesses, had heard from many clients who said they received notice of the impending bill by mid-June. But the number could well escalate in the coming weeks.

The situation is already more alarming than the state or its businesses could have anticipated when the feds announced unemployment benefits would be extended up to 99 weeks in the wake of the Great Recession. In order to fund such a mandate, states were in the position of trying to make payments without further help from the feds, or accept a loan available in January, 2010. Colorado joined at least 30 other states in taking the money. The feds waived interest on the loan throughout 2010, but announced interest would begin to accrue in January, 2011. The letter from the state Department of Labor explains that the greater the gross wages a business pays, the more it will pay in unemployment interest payments. The July bill covers each business’s assessment for the first quarter of this year. The letter adds that bills must be paid within 30 days of the billing date.

“There are some things that could happen if states don’t repay their loans to the Federal Unemployment Account,” said Hildebrand.

If states don’t stay in compliance with the federal loan terms, employers may see an increase in their federal unemployment tax assessment—FUTA—said Hildrebrand. Indiana, Michigan and South Carolina had outstanding unemployment insurance (UI) federal loans as of November 2010.  Employers in those states saw an increase in their FUTA tax rates for 2010.  The same thing could happen to many states for 2011–including Colorado.

It’s also feasible that both the federal and state governments could increase the salary level at which they cap the unemployment insurance premium requirements on businesses. Colorado currently caps state unemployment insurance premiums for the first $10,000 a worker earns in a year, while some states have caps up to to the first $26,000 earned, said Hildebrand. The federal cap on FUTA  is for the first $7,000 earned, a figure that hasn’t changed since 1983, said Hildrebrand, who recently attended a seminar that featured information about the impact the economic recession will have on unemployment insurance at the federal and state levels.

Looking forward, she added it’s important for businesses to understand how to avoid paying unemployment claims filed by former employees. Even though Colorado is an employment at-will state, there several things an employer can do to help reduce unemployment claims.

Before terminating an employee, an employer should take these basic steps: give the employee a verbal warning, letting her know she needs to correct a behavior, then follow with a written warning giving an employee a chance to change her behavior in order to address concerns expressed by the employer. Document disconcerting actions by employees and retain the notes in an employee file. Managing employees through coaching and mentoring can be a way to avoid problems at the outset of employment.

If the proper steps are followed, an employer should appeal any unemployment claims in a timely manner. Make note of any erroneous charges on the part of the former employee.

Such steps don’t protect an employer from charges of discrimination based on age, race, religion or gender, but they might protect an employer who terminates an employee for failure to perform acceptable work.