Business owners in Colorado who’ve had at least one claim for unemployment insurance benefits filed against them face an unexpected bill in July.
The bill from the Colorado Department of Labor and Employment (CDLE) purportedly will help the state make interest payments on funds the state borrowed from the federal government last year to pay unemployment benefits.
A letter from the CDLE has been sent to about 35,000 employers who will realize an average bill of $340. Collectively, they’ll make $11.9 million in interest payments.
The state anticipates that businesses will receive a bill once a year until the loan is paid off, according to a spokeswoman with the CDLE.
Already faced with a soft economy and declining profits, many business owners might find irony in the fact they’re being asked to pay interest on a loan they never asked to take that in turn makes expansion of their work forces 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 other business owner who’s faced 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, a payroll processing and human resources services firm in Grand Junction. Hildebrand said she’s heard from many clients who said they received notice of the impending bill by mid-June. But the number could well escalate in 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. To fund such a mandate, states were left in the position of trying to make payments without further help from the feds or accept a loan made available in January 2010. Colorado joined at least 30 other states in taking the money. Since the beginning of last year, Colorado has borrowed $811 million and repaid $530 million, according to the CDLE spokeswoman. Hildebrand pegs the loan at $346 million, a figure she said she obtained during a seminar on the effects of the recession on unemployment insurance.
The feds waived interest on the loan through 2010, but announced interest would begin to accrue in January 2011. The letter from the CDLE 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,” Hildebrand said.
If states don’t comply with federal loan terms, employers could see an increase in their federal unemployment tax assessment — FUTA — Hildebrand said. Indiana, Michigan and South Carolina had outstanding unemployment insurance 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 both the federal and state governments could increase the salary level at which they cap the unemployment insurance premium requirements on businesses. Colorado 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, Hildebrand said.
The federal cap on FUTA is for the first $7,000 earned, a figure that hasn’t changed since 1983, Hildebrand said.
Looking forward, Hildebrand said 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 steps an employer can take to reduce unemployment claims.
Before terminating an employee, an employer should give the employee a verbal warning, let her know she needs to correct a behavior, then follow with a written warning giving an employee a chance to change her behavior to address concerns expressed by the employer. Employers should document disconcerting actions by employees and retain the notes in a file. Managing employees through coaching and mentoring also offers ways 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 might protect an employer who terminates an employee for failure to perform acceptable work.