Wisconsin Manufacturers & Commerce
501 East Washington Avenue
Madison, WI
Management: James Buchen, Dan Peterson, Ed Lump, Susan Haine, Earl Gustafson
Labor: Phil Neuenfeldt, Dennis Penkalski, Patricia Yunk, Red Platz, Mike Bolton
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Bob Whitaker, Lutfi Shahrani, JoAnn Hium, Carla Breber, Ben Peirce, Bill Brueggeman, Tracey Schwalbe, Dick Tillema, Christopher O’Brien, Robin Gallagher, Andrea Reid, Brian Bradley
Others present: Larry Smith (UC Management Services), Michael Metz (WI Independent Businesses, Inc.), Bob Anderson (Legal Action of Wisconsin), Ray Odya (Seek Inc.), Bill G. Smith (NFIB), John Metcalf (WMC), Mike Klein (WI Technology Network), Joe Vanden Plas (WI Technology Network), Dennis Barnum (CEO Simicomm)
Mr. LaRocque calls the meeting to order at 9:38 a.m.
Mr. LaRocque introduces Mike Klein, Wisconsin Technology Network, LLC, who requested to appear before the Council regarding an audit of his business and his concerns regarding the employee definition.
Mr. Klein states he is President of Wisconsin Technology Network, LLC. His business is located in Fitchburg, Wisconsin, and was founded in December 2002. Mr. Klein indicates that Dennis Barnum and Joe Vanden Plas also are in attendance.
Mr. Barnum introduces himself as the CEO of a start up high tech company called Simicomm. He moved to Wisconsin in the past five years from Minnesota where he was an entrepreneur. He has worked in Minneapolis, Denver, and Seattle, and is familiar with how the independent contractor issue is dealt with in those states compared to Wisconsin.
Mr. Vanden Plas introduces himself as the senior editor of Wisconsin Technology Network. Prior to becoming an employee with this company, he was an independent contractor providing services for the company.
Mr. Klein thanks the Council for allowing him the opportunity to address recommendations for changes to the unemployment insurance law in Wisconsin.
Mr. Klein explains that the Wisconsin Technology Network mission is to connect the people, technology and ideas driving the advancement of life sciences, biotechnology and information technology in Wisconsin along with clusters and corridors throughout the Midwest, to provide economic development to create higher paying jobs for the citizens of Wisconsin. In the process of setting up his business, Mr. Klein attended numerous business and entrepreneurial associations, conferences and classes offered through various institutions, including the University of Wisconsin Small Business Development Center. He joined various groups, such as Wisconsin Technology Council, Accelerate Madison, Wisconsin Information Network and Madison Chamber of Commerce. He launched a news organization called wistechnology.com, a web-based news portal for business, technology, economic development and entrepreneurship in Wisconsin. Over 100,000 individuals worldwide read his weekly electronic newsletter about economic development in Wisconsin.
Mr. Klein consulted with the city and state entrepreneurial organizations for advice on small business development. He hired professional service firms, such as RSM McGladrey, Foley & Lardner, and Michael Best and Friedrich, for business and employment advice. He had formal writer agreements and work-for-hire agreements written and has used them in his business. He also contracted with Manpower and QTI for job services for employee handbook development.
Mr. Klein indicates that he felt he did as much as any small business could do to prepare and educate itself for business in Wisconsin. He has never been to or heard of training on the hiring of independent contractors vs. employees. He reviewed the rules, talked with lawyers, and spent thousands of dollars on legal agreements drafted in which the worker or company being employed states that they are independent contractors. The contracts provides that the person assumes all responsibility for workers compensation, unemployment insurance taxes, all taxes and states that they perform services for other people.
In August of 2006, he felt he was doing everything right. He filed quarterly UI reports and taxes and had never been late or had a claim for UI filed against the business. The business was audited in October of 2006. The audit lasted approximately 4 hours. All documents and contracts were presented as well as certain circumstances discussed with the auditor. However, no guidance was given as to what the company should be doing.
On February 16, 2007, Mr. Klein first received the initial audit proposal and overall payroll variance. He was not provided any reasons for why certain contractors were classified as employees. He was told that interest had begun accruing at the rate of 1% per month, but there was no form attached explaining the rate of interest, that the interest was compounded, and that if he was to pay the interest at what rate he would be reimbursed. Mr. Klein has been told since then that he would have to take a rate lower than the interest rate he would have to pay the state. Mr. Klein does not think this is fair to the business owner.
The total of the amounts in the audit resulted in an assessment of $500. As a business person, it is easier to write the check than to appear before the Council, appeal the decision, and hire an attorney over such a small amount. Mr. Klein is here on a matter of principle to represent entrepreneurs and the business community in what he feels is an overburden on the taxpayers of Wisconsin when some of the amounts for individuals in the audit are $8.19, $4.42, $.62 and accruing interest. In almost every one of these situations, the person had signed a contractor agreement. He has filed an appeal of the audit results. He was asked to be specific in his appeal, however, he was provided no specifics as to why these people were disqualified and no points on the 10-point test are provided. He called the auditor and has yet to receive a breakdown of which potential independent contractors failed to meet which part of the 10 point test so he could adequately research and provide that information. He filed the appeal and has not received a response to date. He has been told that this can take months.
In the January 2007 Council meeting, Mr. Klein notes that Mr. Bergan stated that audits should not take more than 4 to5 weeks on the worker’s behalf. Mr. Klein finds it incredulous that it takes months on the employer’s behalf while it is accruing interest. He also finds it incredulous that the entire burden of proof lies on the employer when someone comes to the business and represents themselves as either a business providing services or a freelance contractor and they sign an agreement as an independent contractor. A year and a half later they are determined to be employees. This is not tracking with where the economy is going. The stated policy of the Governor is to back economic development and higher wages for employees in the state. The way the current statutes are written and interpreted, he is now hesitant to hire any new business because they may not have a federal employer identification number and they may not have filed a Schedule C the year before.
Mr. Klein provides an example of a biotech researcher who is working at the university and comes up with an idea and helps a colleague write a business plan or grant, and then a year later is determined to be an employee. The same thing seems to be happening to journalists who provide independent services and then the hiring company is later told they are employees. Mr. Klein indicates that he has copies of agreements used by Madison Newspapers and the Capitol Times that are less specific and less onerous than the contracts he had drafted.
Based on his experience, Mr. Klein makes the following suggestions for law changes:
The burden of proof should be shifted to the worker when they have signed a contract stating they are independent contractors and assume all responsibility for all taxes, UI, worker’s compensation. The UI Division currently does not consider these documents significant proof or documentation when these contracts are shown to auditors. Mr. Klein suggests shifting the burden of proof where there is an independent contractor agreement in place.
Mr. Klein suggests that the test requirement that a business have significant start up and operating costs is inconsistent with what the Governor calls the twenty-first century knowledge economy. A biotech researcher or writer can start a business with a phone and an internet connection or a library computer and a cell phone. For less than $25 they can launch a website, they are not required to form an LLC, and they can form a business with relatively low start up costs. Mr. Klein suggests that the way the rules are interpreted today are apply more to an era prior to the internet.
Mr. Klein also comments that the length of time for feedback on audits is too long. He had no feedback for four months after the audit date. He has appealed and that may take several more months. In the meantime, he is being charged interest. He could pay that amount, but be reimbursed at a lower interest rate. Mr. Klein would like to propose a change to the rules that when results of an audit are sent that there be specifics as to what rules the agency determined were not followed. Mr. Klein questioned how a business can specifically appeal or can make changes if they do not know what to address. Mr. Klein notes that the IRS provides this information. He still does not know what he did wrong or what he could do better. The state can save taxpayers money for audits that result in lengthy appeals, time of the employer and state, and costs of attorneys CPAs on amounts that are very small. There might be a minimum standard for the amount of money involved in a contractor agreement.
Mr. Klein suggests that in certain areas there should be minimum wage reporting rules for seasonal or retired workers that insignificant sums of money could be considered gifts. He notes that he had two women in their 70s staff a registration table. They were basically volunteering their time and he gave them $120 for two days. He did not consider them employees, but rather considered this a gift. These people were later picked up as employees in the audit. Mr. Klein notes that caddies are excluded in the statute and this seems inconsistent.
Based on a shortage of workers, a better standard can be established for which cases to audit to save the state resources. Mr. Klein suggests that a business found to be in violation of the code be given a grace period or, if they would take a training program on the law, be exempt from fines, interest or assessment if they were acting in good conscience all along.
Mr. Klein also suggests that status calls should be made during the period of an audit to provide updated information prior to a determination being made, such as the requirement that an employee file a Schedule C in the prior year. If the audit overlaps years, new information could be provided to the auditor, saving time and taxpayer money.
Mr. Klein also suggests exemption clauses for new entrepreneurial businesses during the time they establish clients, develop recurrent revenue streams and expenses, and file required government paperwork while starting the business. The current law makes it hard to hire new businesses.
Mr. Barnum indicates that he is in Wisconsin for personal reasons not because he felt it was a good place to do business. He thinks it is a very tough place to do business because business is not treated like an ordinary citizen. He thinks businesses are presumed guilty until proven innocent as opposed to the rights of individuals. In other states where he does business, when a business is audited, they quickly determine the value of what they are looking at. If it is a very small amount of money, they determine that it is not worth the time to investigate which saves the state and the business a lot of money. They only go after egregious violators, which Mr. Barnum thinks is a better practice. Also Wisconsin is at a disadvantage for economic development because there is too much emphasis on process as opposed to results. In the state it appears that the process is sacred and the results are variable. The rules that Mr. Klein has proposed would go a long way to achieving the goal of better economic growth, making it easier to do business, and still achieve the goals of the state in terms of good enforcement.
Mr. Vanden Plas indicates he is now a full-time employee, but he offers to answer any questions about the time he was an independent contractor. He was between jobs and not sure if he wanted to pursue his own business as a freelance writer.
Question (Buchen): Can the Council get a copy of the law change suggestions in writing?
The Council has copies of Mr. Klein’s email. Mr. Klein provides his written comments to the Council.
Comment (Buchen): This has been a difficult area for years. One of the challenges has been trying to balance the legitimate independent contractor situations with the people trying to abuse that situation. Though you may wonder why we take these things so seriously, if people say they are independent contractors, why do we make them prove it? The concern is that in some of these situations there is more of a coercive potential, perhaps in less skilled labor situations. The challenge is trying to figure out how to have a law that makes it clear that this is a willing transaction between people without creating insurmountable hurdles. I do not think we have succeeded because this is an area we get endless complaints. I agree it needs further work.
Mr. Klein indicates that this is why a contract with specific language would be helpful to making the determination.
Mr. LaRocque notes that one of the challenges is where to draw the line if parties intend to be outside the law, and should there be any restrictions on the employer’s rights to write those agreements to write the employee out of the law.
Mr. Klein notes that this is why he thinks that when the employer, acting in good faith, has an attorney draft a contract agreed to by the other party and when the other party indicates it is a business, the burden of proof should be removed from the business.
Comment (Haine): Mr. Klein sought advice on this. It seems like it is almost a case-by-case basis. There are cases where there may be duress and that is the only way you can get a job. In the reporting and writing field, it is fairly common to have freelance writers and independent contractors. I don’t know if there can be a blanket change.
Question (Yunk): Are you saying that if a prestigious law firm drafts the document that that validates the relationship between the company and worker, that somehow the source of the document validates the relationship?
Mr. Klein responds that a document drafted by an attorney that is reviewed by both parties and their attorneys should be given consideration and force of law. Maybe there should be a clause like in other agreements that you have 72 hours to review it with counsel before signing.
Comment (Yunk): I raise this in conjunction with the situation where there is the potential for subtle and not so subtle coercion when one of the parties is in a very difficult economic situation. I thought you were saying that the format of the document carries the weight as to the intent of both parties or the absence of other ulterior motives. I do not necessarily agree with that. Would it be fair to put the issues you raised today into two categories, one is concern with the standards or construct of the law and the other is the process of the audit itself?
Mr. Klein agrees with the characterization of the two issues. He indicates that the contract is one condition where the burden could be shifted. In his case, individuals have looked at the contract and refused to sign it. They were not coerced under duress. The burden of proof issue is not just in journalism. It is also in the sciences and information technology where people may work from their homes. Because it is their first year, they may not have filed for a FEIN because they did not need one. These may be requirements they are not even aware of, even though they are in business. It makes the 10 point test an unfair burden of proof.
Question (Haine): Did the department consider in its analysis the tests that are out there for independent contractor or employee?
Andrea Reid, Director of the Bureau of Tax & Accounting, responds that for every audit where there are independent contractor issues, the department always goes through the 10-point test. In Mr. Klein’s case the auditor did look at all of the employees for the 1099s that had been issued. Some were determined to be independent contractors and some were determined to be employees.
Mr. Klein indicates that to the best of his knowledge he did not receive the document that identified each employee and the facts that failed to meet parts of the 10-point test. Mr. LaRocque will clarify what exactly was communicated to Mr. Klein.
Mr. Klein notes that there are full-time students who work for the Daily Cardinal and have freelance agreements with the Wisconsin State Journal and Capital Times as their own employer and he does not see a fair enforcement of this law. The Capital Times agreements are similar to Mr. Klein’s. For writers, the student does not have an office, a lease or other clients; it is a common practice in the industry that students can gain experience as freelance writers and still not be employees. They sign work-for-hire or independent contractor agreements. The law cautions businesses not to hire students because they might turn out to be employees.
Mr. Klein notes that there are exceptions in the law for agricultural, lumber workers, or golf caddies, and the twenty-first century knowledge workers may not be part of today’s interpretation of the law in terms of what is significant business expenses.
Comment (Buchen): Whoever gave Mr. Klein the advice that if he had the contract he need not concern himself with the 10-point test gave him the wrong advice. The 10-point test is something that is rigid and is a reflection of our collective best efforts. There are people out there who do not meet the 10-point test but I do not think anyone would argue they’re not independent contractors either. We do need to work on this. Sole proprietor businesses do not require a FEIN under the IRS, so why we require it is not clear.
Mr. Barnum notes that other states take the approach that they will use a net with bigger holes and catch the bigger fish. Wisconsin takes the approach of using a very fine next and catching everyone and then throw out the ones that do not apply; if you get a few casualties, so be it because you have managed to protect the rights of every individual. Letting some slip through the cracks is probably in everyone’s interest. You would catch the majority of violators, and other businesses would not be burdened with onerous taxes and expenses to comply with the law.
Mr. LaRocque indicates that the Council will take a look at Mr. Klein’s suggestions and, subject to further interest the Council may have, he will give a formal response in writing to each of the suggestions and concerns Mr. Klein identified. Mr. Klein indicates he appreciates the Council’s consideration of his suggestions. Mr. LaRocque thanks Mr. Klein, Mr. Barnum and Mr. Vanden Plas for their interest in the UI program and taking the time come to the Council and express their concerns.
Mr. Bergan clarifies that about 12 times per year, the UI Division participates in labor law seminars where staff talks about the law, including independent contractor issues. These seminars are conducted around the state and cover workers compensation, UI, and equal rights. The department makes efforts to make these issues clear. The department puts on seminars for employers about twice per month. They are always oversubscribed. The sole purpose is to inform businesses about the UI law. We are proactive about these education efforts and the response from the business community has been positive.
We are guardedly optimistic about SUITES, the tax automation and modernization project. We are aiming at the major deployment for December 2007. Much of the programming is done and we are now in the testing phase which is a big phase for this project.
The planning process for benefits modernization, which was undertaken in the aftermath of the ending the EnABLES project is well underway. We are in the process of identifying things we can do that are important and timely but do not involve the large project model.
There will be an audit from the audit bureau some time soon that will cover all state government. The focus will then shift to what we do next to avoid the difficulties that have plagued these projects not only for UI, but for other agencies.
At a prior meeting when we discussed how the department changed the adjudication process, a question arose about whether the change in the process changed any of the outcomes. Mr. Bergan distributes a hand out. Data was collected to compare January through June 2006 with the same time period of 2007. Of all adjudications that were done during that time, benefits were allowed 45% of the time and denied 55% of the time. That is similar to the data collected for January through June 2005. The chart shows the distribution separation (quits, misconduct) issues at 58% and nonseparation (able and available, refusal of work) issues at 42%. For claims allowed and denied on separation issues, they were allowed 57% of the time and denied 43%; for non-separation issues, claims were allowed 28% of the time and denied 72%. This is the most recent data for before the department changed the process. For January through June 2007, you can see that there is essentially no difference. In terms of how they came out, the adjudications were essentially the same. The process has improved but the substance of the decisions has not changed.
Question (Buchen): Does this refer to the initial claims to the department, that 55% of initial claims are denied?
Mr. Shahrani states that these are cases for which a potentially disqualifying issue has been identified. Many claimants go through the system without needing adjudication of issues. These numbers just reflect adjudication outcomes. Mr. Shahrani describes the improvements in the adjudication process as the “McDonald’s” model of improving the speed and quality of the drive-through rather than building a bigger parking lot. The issues come up and go through the process more quickly and smoothly rather than sitting and waiting for action.
Question (Buchen): Of the initial claims made, how many move to the adjudication process?
Mr. Bergan indicates that the adjudication claim load is approximately 220,000 per year. Mr. Shahrani indicates that the initial claims can be as high as 600,000 or more per year. It looks like adjudicated claims are about 1/3 of total claims, but this is not accurate because a claimant can have multiple issues for adjudication; about 8-10% of initial claims may be sent to adjudication.
Motion (Yunk), 2nd (Lump) to approve the Minutes of the February 28, 2007, meeting. Minutes are approved unanimously.
Comment (Gustafson): He expresses a preference for having minutes reflect the attribution of the person making comments or questions. Haine agrees.
Item to be held for closed caucus.
Mr. LaRocque notes that the department will present the first three proposals on the agenda today. Items D07-04 and D07-06 are under further consideration.
D07-01 to consolidate and streamline able and available (A&A) provisions.
Mr. LaRocque indicates that last year the department discussed with the Council the proposed rule on A&A which is in the process of promulgation. The proposal today is about taking disparate sections of the statute regarding A&A and combining them.
Carla Breber presents the proposed analysis for this proposed law change. The rule worked on recently deals with the situation where a person has been laid off and is collecting UI benefits but then has some form of restriction that must be investigated. This proposal deals with other situations where the unemployment is created because of the restriction, partial unemployment is created or increased because the person cannot do as much, or the person separates because of an A&A situation.
The proposal deals with four A&A disqualifications that are similar and yet have very differing disqualifications. The proposal is to consolidate them in order to provide more equity for similar situations and to simplify how we adjudicate them.
The first provision is the “work available” provision. It deals with someone who has a current employment relationship and then calls in sick during the week. For the statutory provision to apply, that person has to have been already unemployed. Currently, we treat the wages that they could have earned just as if they had earned it and apply the partial wage formula to determine a partial benefit amount.
The second situation is where the employee has to separate or suspend employment because the person is not available for work. Currently we apply the A&A test to this situation, that is, are they meeting the 15% and 50% requirements.
The third situation is where an individual may take a leave of absence for a definite period of time because they are not A&A. In that case, we currently disqualify for whole week and apply the partial wage formula to weeks where there is only a portion of work missed.
The final situation is the family medical leave situation. Any week that someone is on family medical leave, whole weeks are denied; for partial weeks, we apply the partial wage formula and determine a partial benefit amount.
These are different disqualifications for very similar situations. It is hard to explain to one claimant who is suspending their employment because they are not A&A why the A&A test would apply to that person, but the person who has a definite period of time they would be gone are disqualified. There does not appear to be a lot of equity. It is also sometimes difficult to determine which section of the law applies to a situation.
The proposal is to consolidate the sections and just have two provisions. We would retain the first provision where the person currently has a job but is missing work but modify it somewhat. If the person misses work on two days or less, then we will reduce benefits by treating the work they would have missed as wages. Where they miss more than two days, we would deny the week which is be compatible with the A&A provision. Usually if you miss work on more than two days, you do not meet the A&A requirement.
For the second provision, we would create a provision for the separation (suspend, leave of absence, or family medical leave) and in those cases just apply the A&A test. In the first week, if they take a leave in the middle of the week, we would apply the partial wage formula for equity purposes. We would apply the A&A test to full weeks and the partial wage formula where we reduce benefits when it is two days or less in the week of actual separation.
Question (Buchen): So, if you are absent for more than two days, you would not get benefits, and if you are absent for less than two days you would get partial benefits?
Ms. Breber responds that for someone on leave, the A&A test would be applied, but the partial wage formula would be applied in the case for the first week if there is an actual separation.
Question (Buchen): Suppose there is only one week, and the person is off work for two days to go to the hospital with a broken leg. If they are off two days they get benefits, but if they are off three days they do not?
Ms. Breber indicates that that is possible. If they are off two days or less it is not an automatic eligibility for benefits. The partial wage formula is applied, so there would be a reduction in their benefit amount. If they miss the third day, we would disqualify.
Comment (Haine): Is the reason for this that if they miss a third day they are generally not meeting the A&A requirements?
Ms. Breber responds that this is true.
Question (Buchen): If you are not A&A for one day of work, you’re not A&A, what difference does it make?
Ms. Breber responds that the idea was that if you miss work at all there should at least be some reduction. So if you miss work for two days we will compute what you would have earned for those days and reduce benefits accordingly. If you miss work on more than two days, you are probably not meeting the A&A requirements.
Comment (Buchen): I do not see why if you are not A&A for a day, you are just not A&A for that day.
Ms. Breber responds that this is because we do not calculate benefits by the day, but by the week, and the determination needs to be made if the person is eligible for the week.
Question (Buchen): If a full-time person misses a day, are they eligible for benefits?
Ms. Breber responds that a person working full time is probably not collecting UI benefits at the time. If the person filed a claim for that day, there are four other days of wages to offset any UI benefit. The person is not going to be eligible because they made too much money.
Comment (Haine): This deals with someone working part-time, correct?
Ms. Breber indicates that this is the first situation. A person is already collecting UI benefits because they are partially unemployed. For this section to apply, either they were laid off or their hours were reduced but they missed work because they were sick. We will add the wages that they could have earned that day to the wages they actually earned in the other days and compute a reduced partial benefit.
Comment (Haine): The UI program does not have a sick day policy. You are not going to get paid for the sick day, but the wages will count against your benefit amount.
Ms. Breber notes that currently we apply that formula to all hours of the whole week. Our goal here was to bring it back to the A&A. When it goes so far that the person probably was not A&A for the week, to treat it like an A&A situation rather than a partial payment and provide more equity.
Question (Peterson): So there is really no difference if they work or do not work because you are going to calculate what they could have made and reduce the benefits?
Ms. Breber responds that this is correct. The other situation is where a person has been suspended for a period of time. Those cases will be determined by the A&A provisions with the exception of the first week. It does change a little who receives the money and who does not, but the bottom line is that there is no net fiscal effect.
Question (Penkalski): For state apprenticeship programs, a lot of workers go to training all week. Some are prepaid up front but they are not paid that week. They are available for work because it is a day of work; are they still eligible for UI benefits?
Ms. Breber responds that this deals with when are those dollars earned. For the most part, those dollars are earned when they work because it is usually put into a fund. It depends on what they consider paid. For some, for every hour a person actually works, a certain amount is put into the training fund. Those dollars are earned when they work. During the week they are on training they are not earning anything. In some cases, they have to go to the training to be eligible for the extra money. If the eligibility is satisfied by attending the training, then some of it may be earned during the week of training.
Question (Penkalski): Some of the trainings are two or three days a week to allow them to work. What happens if they are suspended or unemployed?
Ms. Breber responds that most of them are eligible because it is considered approved training. Ms. Breber notes an error on the analysis. She thought the approved training provision would need to be amended, but it does not so that can be crossed off on the second to the last page.
Question (Yunk): The FMLA requires that there be no adverse impact on an employee as a result of taking a leave. Recent litigation against employers emphasized this requirement. The employee has to be treated as if they were at work relative to benefits earned. Have you checked that this is not an issue for A&A as far as the FMLA is concerned? It may not be applicable, but you should check this.
Comment (Haine): If you qualify for FMLA, you probably would not be A&A to work. The department should check, but this probably was thought about when it was adopted.
Mr. LaRocque indicates that the department will check this out and provide follow-up.
D07-02 Standardize treatment of full-time at thirty-two hours.
Ms. Breber explains that currently we apply four different definitions of full-time in the UI law. This proposal is to consolidate and use one definition for full-time. Recently the Council changed the definition of full-time in the administrative code to 32 hours. This definition is used whenever a reference is made to full-time, but there are provisions that indicate specific numbers of hours. These have been inserted or amended over the years based on what was considered full-time. The proposal is to use the term “full-time” in the statutes and have one definition in the statute that will apply in all references to full-time and not to use numbers of hours in individual statutes.
There are two quit provisions that deal with having a full-time job and quitting a part-time job. In the first case the provision is “more than 30 hours.” This quit exception applies when it is economically not feasible for a person to continue working a part-time job that consists of no more than 30 hours when they lose their full-time employment. For example, someone who had a full-time job in another city who picked up a part-time job there as well, would not be disqualified for quitting the part-time job if the person lost the full-time job in that city and it became economically unfeasible for them to continue just the part-time job in that location. This provision is not used often, but it must always be considered.
The other quit provision created in 1991 is almost the reverse. The person works concurrently for two employers and quits working for one of them before realizing they will be terminated by the full-time employer. The quit exception allows that person to be eligible for benefits. This exception is used a little more often. The proposal would change this to “full-time” hours.
Question (Buchen): Why would you be ineligible for collecting benefits from your full-time employer if you did not quit that employer?
Ms. Breber responds that a quit disqualification is not specific to the employer. If you quit any job, the quit disqualification applies.
Comment (Buchen): I did not realize it was not tied to the employing unit.
Question (Neuenfeldt): When will the fiscal analysis be available?
Mr. Tillema states that these will be done by the next Council meeting. He is not expecting these two to have much of a fiscal impact because there are very few of these quit exception cases.
Comment (Haine): In general, if someone is working 40 hours at a job, Monday through Friday, and there is a downturn in the economy and the employer can no longer keep employees working on Fridays, if 32 hours is full-time would this mean that they are not eligible for benefits because they would have worked Monday through Thursday?
Ms. Breber responds that there are two things to consider here, hours and wages. Currently, we do not disqualify someone based on hours worked unless they work 40 hours. That is the third definition of full-time. We do, however, look at how much they earn. The person who works 32 hours may earn too much to be eligible for a benefit. Our proposal is to reduce the disqualification for hours to 32. In the scenario, the person laid off for one day might make too much but we would now look at hours and say that based on working 32 hours they would also be disqualified.
Comment (Haine): So this would be a fairly significant change from the employee’s point of view.
Ms. Breber responds that we will see more when we have the fiscal analysis because right now we do not know how many claimants who work 32 hours would be disqualified anyway because of wages. Most people who miss work on only one day earn too much. But there might be unique circumstances where someone would be eligible such as where someone had a high paying job in their based period and are now at a lower paying job. For that person, they may still be eligible for a small benefit.
The fourth provision disqualifies a claimant who receives the equivalent of 35 hours of pay from an employer who paid 80% of their base period wages. This used to be 38, but was changed to 35 hours.
Comment (Buchen): There was a case where an employer’s regular full-time was less than 40 hours and an employee for a period of time worked overtime. When the hours went back to their regular full-time, less than 40 hours, the person sought and received some modest benefit amount. The amount was small but money was not the issue.
Ms. Breber notes that this provision is limited to situations where employers paid 80% of the base period wages. We are just trying to make it a consistent number for full-time.
Comment (Haine): There are four definitions for full-time. Even if the situations do not arise that often, that must be very confusing.
Comment (Gustafson): Notes a typo on the language of 108.05(3)(b)1. The reference to 35 hours should not have been there, but the crossed out language should still be crossed out.
Comment (Haine): If you are not using specific hours in the statute, where would a person go to find out what is considered full-time?
Ms. Breber responds that the proposal is to define full-time and part-time in the statute. The definition is already in the administrative code.
Mr. LaRocque notes that we will provide the fiscal at the next meeting.
D07-03 Program Integrity; fraud and forfeitures.
Ms. Breber states that this proposal is to make more of a deterrent for committing concealment and ultimately reduce overpayments, and at the same time simplifying the calculation of penalties under the statute. There are two big changes. First, work and wage concealments are our largest category of concealments. Currently, once we know what wages were concealed, we still compute a benefit payable for that week. The first part of the proposal is to provide that if a person has concealed wages in a week, they would not be eligible for any benefit for that week. We do not think we should reward them for the week of concealment by giving them a partial check; we would like simply to provide that they are disqualified for that week entirely. This would be a huge simplification and a deterrent.
The second part of the proposal increases the penalty for the second and subsequent acts. Ms. Breber hands out an illustration of the benefit computation under the current formula and the proposed penalty for the first act of concealment. Under the current formula, we impose a penalty of ¼ of a person’s weekly benefit rate up to 4 times the weekly benefit rate. By policy, we have applied this as a graduated penalty assessment based on the amount of the overpayment. The proposal is to have a penalty for the first act of concealment of one time the weekly benefit rate. For the second act, the penalty would be 3 times the weekly benefit rate. For the third act, the person would be disqualified for 6 years.
On the illustration, the figures on the left show the calculations currently done week by week with concealment in each week. The figures on the right show the computation under the proposal. The totals reflect an increase overall in overpayments and forfeitures. For the second and third acts of concealment, there will be more significant increases in penalties.
The proposal also includes a definition of concealment which is currently not defined. Every time a person does not report wages, it is not concealment. We think the change should provide real deterrence and the process should be less complicated.
Question (Penkalski): What is the fiscal impact of this proposal?
Mr. Tillema indicates that this is yet to be determined.
Question (Platz): If there is a concealment, would any of these weeks result in the six year suspension of benefits?
Ms. Breber responds that on the third determination of concealment, there would be an overpayment but there is no additional penalty assessed, just the six-year suspension. If any weeks become payable while the investigation is pending, they would be forfeited.
Question (Platz): Is every check every week an act?
Ms. Breber responds that every weekly certification is an act. Mr. Shahrani clarifies that an act and a determination are different. An act is any misrepresentation, falsification or concealment. You may have a series of acts of concealment, up to 26 weeks, but the penalties do not apply until a determination is issued. The second week or act is not going to subject the claimant to the second level of penalty. With the determination, the claimant is put on notice of the penalty for subsequent acts of concealment. A claimant would be subject to the second level of penalty for weeks of concealment subsequent to the first determination. That may be one or multiple weeks. At the second determination, the second level of penalty is applied. The claimant is then put on notice that further acts of concealment could result in the 6-year suspension. If the claimant again conceals, the third determination would impose the third level penalty. The penalties do not increase with the weeks of concealment; they increase with each determination of concealment which may include one or several weeks.
Question (Penkalski): What penalty would be assessed against an employer who might collude on that?
Ms. Breber responds that the penalty for the employer is that the employer may be liable for each act of concealment of an amount equal to the amount of the benefit the claimant improperly received. That is not changed with this proposal.
Comment (Penkalski): This does not appear to be as severe as the 6-year suspension for claimants.
Question (Haine): Does that happen very often?
Ms. Breber indicates that these cases are hard to prove but there are some. Sometimes it is multiple claimants with an individual employer and sometimes it is an individual claimant. The penalty could be increased if they do it more than once, that is a possibility.
Comment (Buchen): It is against the employer’s economic interest generally, but this may happen when they have figured out that it is somehow in their interest.
Comment (Haine): There is a possibility of this with PEOs where the PEO is the employer of record but the client employer may collude with the employees.
This is an information item.
This is an information item.
Return to this agenda item. Motion (Neuenfeldt), 2nd (Buchen), to go into closed session pursuant to section 19.85(1)(ee) of the Wisconsin Statutes. Motion passes unanimously.
Closed session, 11:30 a.m. Return to open session, 12:33 p.m.
Comment (Neuenfeldt): The issue raised questions with the legislative committee members. It was given back to this committee and there were more questions. A lot of those concerns were submitted in writing and we received the department’s responses from a legal perspective. I recommend that you meet with the leadership of the Labor Committee so you can explain what the concerns were and how you responded. Some of the problems were trying to clarify what we agreed to and what the language was. It did raise some concerns on our part.
Motion (Neuenfeldt), 2nd (Buchen), After review of questions and responses to Rule 133 we move approval, however, we do want to note that unilateral action by the department to remove certain verbiage that we agreed to has caused us serious concern. We hope this does not happen again; it could cause credibility concerns on our part. Motion passes unanimously.
Future meetings: The meeting previously set for May 15th is rescheduled for May 29, 2007, at 9:30 a.m. at Wisconsin Manufacturers and Commerce. The June 13th meeting will remain as scheduled.
Meeting adjourned, 12:40 p.m.
Updated
March 25, 2013
Unemployment Insurance Division,
Bureau of Legal Affairs (BOLA)