Wisconsin Manufacturers & Commerce
501 East Washington Avenue
Madison, WI
Management: James Buchen, Ed Lump, Susan Haine, Earl Gustafson
Labor: Phil Neuenfeldt, Dennis Penkalski, Red Platz, Mike Bolton
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Bob Whitaker, Lutfi Shahrani, Tracey Schwalbe, Carla Breber, Ben Peirce, Bill Brueggeman, Dick Tillema, Andrea Reid, Brian Bradley, Troy Sterr, David Heuer, Randy Hardin, Sherry Anderson, Andrea Thompson, Cindi Roberson, Tom McHugh, John Zwickey, Lora Waddell
Others present: Larry Smith (UC Management Services), Michael Metz (WI Independent Businesses, Inc.), Bob Anderson (Legal Action of Wisconsin), John Metcalf (WMC), Dan McIlroy (Pro Ad Spec, Inc.)
Mr. LaRocque calls the meeting to order at 9:43 a.m.
Mr. LaRocque introduces Dan McIlroy, Pro Ad Spec, Inc., who requested to appear before the Council regarding deferral of payment of contributions for the first quarter where the amount of the contribution is at least $5,000. Mr. LaRocque received a call from Representative Hebl regarding Mr. McIlroy’s concern that smaller employers with a lower contribution due are not able to defer the payment.
Mr. McIlroy states he and his wife have a business called Pro Ad Spec located in Cottage Grove. They are the only two employees of the business, though in the past they have employed up to five people. Due to layoffs, their tax rate increased, and in April they had a significant contribution due of $1,400. He called the department and was told there was a deferral program, which allows businesses to pay the first quarter taxes due spread out over the four quarter payments in the year. However, he was not eligible for the program because his amount due was less than $5,000. He felt that as a small business, the $1,400 liability was just as significant as a $5,000 liability would be to a larger company. He contacted Representative Hebl to get more information about the provision and was directed to the Advisory Council. He realizes that there are administrative concerns with doing this, but he thinks it is an issue that should be addressed for small employers below the current $5,000 threshold.
Question (Penkalski): Were there any penalties or interest in the amount that was due?
Mr. McIlroy: No, the account was current. The amount was high because of the deficit from having to lay off employees in past years.
Brian Bradley, Bureau of Tax & Accounting, explains that this provision has been in place for 4 or 5 years. At the $5,000 threshold, there are 9,600 employers eligible for the deferral; this year 385 employers took advantage of this. The department must handle deferrals manually. Any increase in the number of employers that can take advantage of the deferral would create an administrative burden on the department. However, the SUITES program will allow deferral to be handled in an automated process. If the threshold is lowered to $1,000, approximately an additional 19,000 employers would be eligible, though we do not know how many would opt to take advantage of the deferral program.
Question (Buchen): What are the criteria for using the deferral program?
Mr. Bradley: that the employer owes more than $5,000 for the first quarter, pays 40% by April 30th, and makes installment payments of the balance along with regular payments during the balance of the year. There are no hardship exceptions.
Question (Buchen): What prompted this law change?
Comment (Penkalski): This proposal came from the construction industry due to lays off in October/November.
Question (Gustafson): Was the threshold created for administrative purposes, to limit the number of employers rather than allow all employers to do this?
Mr. Bradley: the proposal had the threshold and it was not a department proposal.
Question (Buchen): When will SUITES be able to handle this?
Mr. Bradley: SUITES is scheduled for deployment late this year. Deferrals occur in April. If SUITES is in place on schedule, the department could handle the additional workload next year. Otherwise the following year.
Question (Buchen): If we made a change with a sunrise that was in the future, would that work?
Mr. Bradley responds that this would work; the department would not have a problem with that.
Question (Gustafson): How difficult would it be to set additional criteria, for example, for a hardship or for a significant percentage increase in the tax?
Mr. Bradley indicates that if you add criteria that involve subjective judgments, it will increase the administrative burden. However, if the criteria are based on information that employers are already providing to the department in reports, this would not be a problem.
Question (Lump): Not all 19,000 employers will take advantage of the deferral program. Was Pro Ad Spec eligible for the deferral previously?
Mr. McIlroy states he was not eligible at the $5,000 threshold. However, as a business owner, if he had the option he would take advantage of it.
Mr. Bradley: There are other considerations for employers. The second quarter taxes are used for the cut off for rate purposes. Any amount that is deferred is not included in the balance for computing the rate.
Mr. LaRocque thanks Mr. McIlroy for his interest in the UI program and bringing his concerns to the Advisory Council.
We have a strong draft of the trust fund study. We want to work on it more to make sure it is a useful document to the UIAC and also to the Legislature. We expect this will be ready at the next meeting. The deadline is June 30th. Since the UIAC is going to caucus on legislative proposals, including the trust fund, we prepared a memo for your use in the caucus that explains some rough costs. We would like you to review that and see which ones you are interested in and then we can firm up the fiscal information. Since review of the trust fund requires looking at the math, we put together some options. These are not recommendations from the department; they are just different ways of looking at the problem, and it is not exhaustive. The UIAC may have suggestions that are not on the list, but this will be a working document for you.
There are some general principles to keep in mind as we look at the trust fund issue. The first is that we take the long view and try to formulate a long-term solution that does not require us to revisit this problem every couple of years. We have an opportunity to act now while the economy continues to be quite solid and before we are in a recessionary period. If a recession occurs, it will put a lot more pressure on the trust fund and therefore on the UIAC. At that time, the options we have will be more limited and less palatable. If we act now, we have more options and things that are more likely to pass muster with the Legislature.
Second, it is important to look at our system of tax schedules and triggers. It served us well for quite some time, but it is a system that is over 20 years old and that has to be a part of the deliberations because we cannot sustain the current system.
Third, we need to come up with a strategy to deal with the negative balance in the balancing account. Currently the balance is -$482 million. The income comes from solvency taxes and interest. The charges to the balancing account come from the noncharges and the 10% write-offs. The fund keeps track of what are arguably unfunded liabilities in the system, and we need to try to address that. It is perhaps too big a hole to address at one time, but we should look at a period of five to six years to get the balancing account back down to $0 as we think about what the trust fund should look like.
Fourth, program integrity should be a part of the equation on the trust fund. We need to reduce fraud by employers and claimants and we will have some proposals on that. There is some money involved in this, but importantly, we need to fight the cynicism about the program and program integrity is one of the things we can take the initiative on. Those who play by the rules should not feel they are being taken advantage of so this is an important principle.
Generally, we are working with the employment and training division to create a proposal to improve reemployment. If we do this well, it will help the trust fund and ideally deal with labor shortages. At the division, we are making an aggressive and ongoing effort to simplify the program and make it more understandable to the public. Several of the department legislative proposals we make are to do this. We are providing outreach sessions to small and medium sized employers to explain the program; the response has been excellent. We are also rewriting most of our correspondence so that it is clearer and emphasizes plain language. When a program gets as complicated as UI, sometimes communications suffer and we talk in an inside vernacular rather than a common language that everyone understands.
Two years ago we made a change in policy that if employers do not provide correct and complete information at adjudication and subsequently go to hearing and prevail, they will be charged for benefits paid up until that time. This was aimed particularly at the problems we were having with large, third party administrators. The initiative has been very successful. Comparing 2005 and 2006, the number of appeal cases reversing and establishing an overpayment was down about 28%. Some of this might be a result of an overall reduction in employer appeals, but for the most part it is attributable to the policy. Much of the change came from large out-of-state employers represented by third party administrators. Small or in-state employers have always been better at providing correct and complete information and they have not been particularly affected by this. I have also spent time with TALX to help them educate their clients and I think this has made a substantial difference. It is working, but it has a sunset of June 2008. The department will be proposing to remove that sunset because it has proven to be a good policy and is consistent with policies in other states. Though we were committed to this policy, we had some concerns about how it would work at the adjudication level and appeals process. It has turned out to be quite manageable. We will look at the language and make sure we have done it in the best possible way and then remove that sunset.
The SUITES project is still on track for a December deployment for its major release, with a smaller release to follow in the spring. Things are going well, however, if any distress signals appear on this, we will make sure to communicate this with the UIAC promptly and directly.
There has been some federal legislative action that is potentially of interest to UI. Both proposals come from Representative McDermott, the chair of the UI Subcommittee of the Labor Committee. First, there was a proposal for wage insurance. Part of the reason for this is that now there is over $10 billion in the federal trust fund. Under the wage insurance proposal, the UI system would provide an additional cushion for someone who lost a higher paying job and took a lower paying job. That proposal was opposed by employers and the AFL-CIO, so it is unlikely to pass. The second proposal was to take some of the federal trust fund resources and pay it out to states based on the way their benefit systems operate. One of the requirements would be to have an alternate base period, which Wisconsin already has. There were other provisions relating to quits where the state could qualify for more money based on the benefits it offered. That proposal has more support, and if it passes, it would provide some short-term relief to the states, but it is a one-time distribution. Any payments from the trust fund count against the federal deficit, so in order to do this, they would have to figure out a way to offset somewhere else in the budget. Finally, Representative McDermott has been looking at administrative costs of the states, so it is possible there could be some movement there. We will see where these proposals go over the next several months.
Question (Penkalski): If they make these administrative funds, would they come like Reed Act funds? Would it be the same vehicle or another one?
Mr. Bergan answers yes, it would be analogous to that, but he does not know if they would create a new vehicle to fund this or not. They could add it as a category of Reed Act or create a new category.
Motion (Neuenfeldt), seconded (Buchen) to approve the Minutes of the April 17, 2007, meeting. Minutes are approved unanimously.
Andrea Reid, Director of the Bureau of Tax & Accounting, indicates that since there is a trust fund solvency study in progress, she thought it would be appropriate to put this higher on the agenda to make sure it is reviewed and any questions answered so the UIAC does not run out of time to address it. We are focusing on the represent our fund cash balance and would not intend provide the more detailed information in the future unless the UIAC requests it. The report is produced regularly not just for the UIAC.
Comment (Buchen): We are interested in seeing the detailed information.
Question (Penkalski): Are there any further costs or liability for EnABLES? Did cutting off EnABLES affect SUITES at all?
Mr. Bergan indicates that every last invoice may not have been paid, but there is nothing big left to pay on this. Mr. Zwickey indicates that for the most part everything has been paid, but there may be one small Curam invoice remaining. Mr. Bergan responds that in certain ways it was advantageous to SUITES to cut off EnABLES because more internal resources are available to work on SUITES and it gave us some fiscal breathing room.
Question (Gustafson): Could you explain for any given month the difference between the balance sheet and the reserve fund balance? Which figures are used for the tax triggers?
Mr. Bradley indicates that the analysis on the monthly statement should agree with the fund balance. The “Ending UI Cash Balance” on the June 30th monthly cash analysis is used to determine the tax triggers.
Question (Buchen): Where would the large payment for first quarter taxes be reflected?
Mr. Bradley indicates that this would be in the April cash analysis. This figure was $336 million and was about $13 million less than last year.
Question (Buchen): Would this reduction be partially due to improving reserve ratios?
Mr. Tillema explains that some of the large expenditures of a couple of years ago are now not factored into employers’ experience rating. It takes about three years for those to work their way through. The tax rate computation date is June 30th. The tax year is six months later, so we are always dragging some of those expenditures along. The uptick in benefits from the first six months of this year will not be factored into the rates until June 30th. That will be affected by the increase in the maximum weekly benefit rate.
Question (Buchen): Is the insured unemployment rate going up or down or staying the same? I would like to see updates on the insured unemployment rate.
Mr. Tillema indicates that it is probably going up a little because there are completed weeks of unemployment running about 6 or 7% over what they were last year. The insured unemployment rate is not so important because it varies throughout the year, but in terms of the completed weeks of unemployment that are going into that rate, the department gets that information weekly. We could update that and show it to you in relation to the prior year. You would get an idea of what the insured unemployment rate might be for this year. Mr. Bergan indicates that there is a weekly report that comes out that states how many claims we are paying, etc. It is an easy report to understand. We will make sure that council members receive that report if you do not already.
Mr. LaRocque notes that the department has presented some of the proposals initially but will give a synopsis this time. The department prepared one page summaries for each proposal to try to summarize each proposal. We would appreciate any suggestions on how better to present and explain these to you. This is the department’s effort to shorten and condense the information on the proposals into a short presentation.
D07-01 Consolidate and streamline able and available (A&A) provisions
Carla Breber explains that the purpose of the proposal is to consolidate and streamline the A&A provisions. We are trying to develop uniform criteria for dealing with the various situations when we have to determine eligibility when there is an A&A situation involved. When we think of A&A issues, we think of a person who has already separated from their employment for reasons other than A&A. When they file for UI benefits, and they have some type of restriction that comes up on their claim, we have to determine if they meet the A&A test.
We have several other provisions where the restriction on ability or availability to work has actually created the unemployment status or increased it. This includes missing a day of work while claiming benefits and working part-time, suspending their employment and taking a leave of absence, or even separating (quitting or being terminated) from an employer because of the restriction they have. Now we have more than one way to determine that person’s eligibility depending on the circumstances.
Currently, we apply the standard A&A test when a person quits a job under one of the specific quit provisions if the claimant is not able to do his or her work or if the health of a family member creates no reasonable alternative; we apply the standard A&A test in that situation. We apply the standard A&A test when a person refuses work with good cause but they are not A&A. We also apply the standard A&A test if someone suspends their employment or is terminated by the employer for this restriction if it is for a full week. However, for a leave of absence for a definite period of time or family medical leave for a full week, we automatically deny for the week without regard to the A&A test. When a person misses work in a week with a current employer, we apply the partial wage formula adding the actual wages they earned to the wages they could have earned and determine what kind of reduced amount that person would get. We also apply the partial wage formula to partial weeks of the suspension, leaves of absence, and family and medical leaves.
We have quite a mixture of tests and several complicated provisions with which to work. Our proposal is to focus on the standard A&A test and apply that test in all the various situations with the exception of the situation where a person misses work with a current employer. In this case we propose to apply the partial wage formula if they miss work on two days or less, and disqualify the week if they miss work on more than two days. Even though we are proposing to use the partial wage formula, the disqualification for missing work on more than two days still is compatible with the A&A test because usually when you get to missing on more than two days, you do not meet the A&A test. We would also use the two-day partial wage formula on the beginning of a suspension or a leave of absence if during the first week of that separation the person loses two days or less.
There is no net fiscal effect on this. We are moving the benefits ($100,000) around, and some people will get more, some will get less.
Question (Lump): I am bringing up a case where an employee is laid off from a seasonal employer, enrolled in a tech college, refused a job offer to return because he was still enrolled in the tech college as a full-time student. Can you explain how A&A applies here?
Ms. Breber explains that approved training is a federal protection for a person who is enrolled in whatever Wisconsin law deems to be approved training. It protects a person from being disqualified under the A&A provision and also protects them if they refuse an offer of work. That protection is not going to change under this proposal, but the approved training protection would apply to leave situations. However, approved training during leave does not frequently occur.
The protection for approved training does not extend to separation that occurs because of the schooling. The only protection for someone who separates because of the schooling is under the Trade Act or dislocated worker situations, not in UI. Otherwise, the protection for approved training would extend to someone who has some kind of restriction other than the schooling that was either in place before they enrolled or they were laid off and then entered into training. We will apply the approved training protection in those situations. If someone is laid off and already in training, it likely means they were working and going to school at the same time. Now if they would take a leave of absence or family medical leave, they would have that protection.
Ms. Breber indicates that in Mr. Lump’s example of a refusal of a job recall the result would not change with this proposal. The protection under the federal law is that a person can refuse work and not be disqualified if they are enrolled in approved training. That protection will continue because of a federal conformity requirement.
Comment (Lump): We have some ability to change the time limits? This could go on for two years while they are in school. I just wanted to make sure whether this was not affected by the proposal.
Mr. LaRocque: The Department will report on how approved training provision works. This proposal does not alter that protection.
Question (Neuenfeldt): Will this change anything with the dislocated worker program?
Ms. Breber indicates that it will not. Mr. LaRocque indicates that the proposal is a matter of administrative streamlining and simplifying the law, and the fiscal effect is nominal. Ms. Breber adds there is an equity issue so we are dealing with A&A situations in the same way because the separations subtly different and yet we are treating them differently.
Question (Haine): You are trying to rely on a smaller set of criteria that already exist, so you do not have to look at several different criteria, for A&A when a person is on a leave due such as FMLA and try to consolidate that in one place. Is that fair to say? In your opinion the A&A situations are similar enough that they should be treated the same?
Ms. Breber indicates that it is so the department uses the same criteria for all of the A&A situations. Ms. Breber agrees that the situations are similar and should be treated the same. For example, if a person cannot do the job for a particular employer, they may have to suspend employment for an indefinite period because they do not know when they will be well again. In that case, we apply the A&A test. However, if the person knows the end date, then we disqualify and do not apply the A&A test. The only difference is whether you know the ending date. There is inequity in that result.
Comment (Haine): The proposal is simpler for the department, provides benefits equitably, and has no net fiscal impact.
Question (Larry Smith, UC Management Services): Would a leave for a definite period of time still be an automatic disqualification?
Ms. Breber: No, a leave for a definite period of time and family medical leaves will be determined on the restriction and the A&A test. That is probably the biggest change.
Question (Haine): What happens now if someone on leave comes back sooner than expected?
Ms. Breber responds that under the standard leave of absence provision the employer does not have to take them back early. Under family medical leave there are some rules about taking someone back when they are able to work.
Question (Buchen): If someone is on family leave, you will now apply the A&A test? A father who takes time off for family leave is not A&A so he would not get benefits?
Ms. Breber responds that if the father takes off and is unavailable to do anything, he will not meet the A&A test. If it is a controllable restriction and he is not available for full-time work, he is disqualified. Mr. LaRocque indicates that under the rule passed last year, they would be unavailable as an hours restriction.
Question (Haine): There is a situation where someone requests 12 weeks off, but later determines that 7 weeks is enough time. The employer has already granted the request for 12 weeks, may not be ready to take him back, and may have made provisions to cover his job for 12 weeks. Now the employee is A&A again. Do you just apply those tests and would he qualify for benefits in those circumstances?
Ms. Breber indicates that this proposal would not change benefits in this circumstance. When the person comes back from family medical leave and is A&A, there is no disqualification. Mr. Shahrani indicates that the federal law provides that if an employee gives notice to the employer of an intent to return early, the employer is expected to put them in a job, but the notice must be three full weeks prior to that. If the leave was taken under the state law, once the employee gives the employer notice of intent to return, either the employer takes the employee back or they are considered to be on work status. Under this proposal we will apply the A&A test.
Question (Penkalski): Will this affect the spouse of a National Guard member who is called up and has to travel to another state and the spouse has to quit the job to follow the spouse?
Ms. Breber indicates that this proposal does not affect that situation. There is no quit exception for that person, though it is has been discussed in the past.
Motion to approve D07-01 (Neuenfeldt). The motion is withdrawn.
Mr. LaRocque indicates that there is a memo that was given to the UIAC regarding D07-01 and the question Ms. Yunk had at the last meeting regarding FMLA. We do not think the FMLA would adversely impact D07-01.
D07-02 Standardize “full-time” at thirty-two hours
Mr. Shahrani explains that we currently have multiple definitions of full time and at least four applications. Two of them were adopted early to deal with quit exceptions. One is when an employee leaves one of two jobs, if they have a full-time job yet left we would allow benefits. This uses the “30 or more hours” definition. The other provision is when someone is laid off from a full-time job and it is economically unfeasible for them to continue a part-time job, we will allow benefits. This definition uses “30 or more hours.” We also have a rule that when an employee works for their primary employer and gets paid for at least 35 hours (previously 38 hours) whether in work or in a combination of holiday or vacation pay, benefits are denied. They are considered to be fully employed. The most recently adopted provision in DWD 100 defines full-time as 32 or more hours.
The market conditions and the labor market at large have changed in recent years, and 32 hours is considered “full-time” by and large, and that is what we defined in 2005. Administratively, it is a problem to explain different definitions to employers and claimants and also to apply the correct provision by staff. We believe it is reasonable to adopt the 32 or more as the standard for full-time work across the board. It is simpler, easier to explain, and it makes sense. There will be a great deal of benefit to the department to make this change, and a great deal of benefit to the claimants and employers who continue to ask the questions about the different definitions of full-time and the confusion it creates.
The fiscal impact will be most significant for those who are now allowed to claim benefits while they are working up to 40 hours. If someone has a high benefit rate and is now working at a job that pays less, they may be eligible for a partial benefit. When we change to 32 hours, they will no longer be able to claim that partial benefit if they work more than 32 hours. The net decrease in benefits is estimated at $1.9 million. The bottom line in this proposal is adopting the one standard that is reasonable, fair and simple to explain and apply, rather than multiple provisions.
Question (Larry Smith, UC Management Services): Would there be any circumstances where someone working 32 or more hours per week would be able to draw benefits under this proposal?
Mr. Shahrani indicates no. The federal government requires that those who are fully employed must be disqualified from benefits. Fully employed means they are working. For those fully employed, they should not be paid UI benefits. Many other states disqualify at a lower number of hours for benefits.
D07-03 Simplify formula for fraud penalties; increase penalties
Ms. Shahrani indicates that this is to simplify the fraud penalty formula and enhance program integrity. Our current law penalizes claimants who commit fraud at different levels, from ¼ the benefit rate to 4 times the benefit rate. Sometimes in one determination we need to sort out which calculation applies to different weeks and send a rather confusing determination to the claimant. We do not really have a progressive deterrence under our current law per se.
We tell claimants at every contact point about their responsibility to provide us with correct and honest information. We have a section in the claimant handbook. We tell them immediately when they file initial claims and weekly claims. We tell them that when we send them a document. We tell them they must provide us with correct information and that there are penalties for fraud. If we send them a computation of benefits if there is an overpayment, we send them a notice and a warning. In many cases that we investigate, we send a “letter of direction” that says that you filed a claim, this is the statement you made, and we found out this information was not correct or you misrepresented this information; however, we are not making a finding of intentional concealment. We tell them to be careful in the future. We put forward quite a bit of effort along these lines to forewarn the claimant. It is the claimants that we find falsified and intentionally concealed information that we penalize.
The proposal is to simplify the application, to build in deterrence and impose penalties. Those who do not play by the rules should not have continued access to the UI program without a penalty to deter them. Mr. Shahrani hands out a document entitled, “Fraud Facts.” In 2006, the department conducted about 8,000 investigations, of which approximately 6,400 were for fraud. About 1,700 received a letter of direction. About 800 were told we investigated and did not find anything significant. About 3,200 were determined to have concealed work and wages. These are the most problematic.
Question (Neuenfeldt): How do you arrive at that determination?
Mr. Shahrani explains that the department gets the wage information from the employer and cross-matches this with the weekly claim. We send the claimant a document that breaks out the weeks and shows what they reported, the wages the employer reported for that week, the benefits they received, and the potential overpayment. We give them a chance to review this and also tell them that this is potential fraud. Then we do an investigation, talk with the claimant, confirm if they worked, ask if they have records, and ask them for the reasons they failed to report. The question on the weekly claim is “did you work?”
Question (Neuenfeldt): Is this the situation where someone gets laid off, they file for benefit, and then get recalled and continue to claim benefits?
Mr. Shahrani indicates yes, and also when they file a claim when they are working. They may report one employer and not the other.
Comment (Penkalski): That could be collusion with an employer, too?
Mr. Shahrani indicates this is possible. For many of these, we send a letter of direction for the first time. If it was a week or two, or they forgot, we do not penalize them. For those who do it for many weeks or have no explanation, we penalize them.
Reviewing the numbers, the total numbers of determinations of fraud 5,542 out of the 318,655 actual claimants paid, is 1.7%. The actual number may be smaller because many claimants receive multiple determinations. If we contrast the amount of overpayments as a result of fraud versus our overpayments for the year, of roughly $18 million in overpayments, approximately $5 million were fraud, or 26.5%. In other words, 26.5% of our overpayments are due to fraud because of 1.7% of claimants committing these acts.
Question (Buchen): What is the cause of the rest of the overpayments?
Mr. Shahrani indicates that this may be underreporting of weekly wages where the claimant estimates wages but it is inaccurate. If we catch someone with a week or two of overpayments, that is not considered fraud, we send them the letter of direction. Mr. Bergan indicates that a lot of these overpayments are small and are handled routinely, but cumulatively it is a significant number.
Mr. Shahrani shares information about fraud penalties in other states in the Chicago region. Wisconsin does not aggressively push the punitive side of the law. Other states may have a flat rate of $500 or $1000 penalty per act. They may disqualify a claimant for 26 weeks for an act of fraud. Some states disqualify up to a year, or until the claimant makes repayment of the benefits in full. Thirty-four states will cancel the wage credits or reduce the remaining benefits. We do not do these things and are far more lenient that other states. However, we have a collective responsibility, especially with the status of the trust fund, to not make it too easy or lenient for those who come back and commit fraud, who consider us a free loan or a source of financial compensation when not due. For the handful of claimants who continue to commit fraud, we need to make it more difficult and more punitive for them to commit fraud. Mr. Bergan indicates that we handle these in a scaled way. There is a set of remedies. We give people notice and an opportunity to correct their mistakes. This small group is the people who are essentially repeat offenders. For all the people who get the notice and comply, they have a right to a system where their good behavior is rewarded and the behavior of these people who are consistently trying to take advantage is sanctioned.
Question (Penkalski): Who makes these decisions?
Mr. Shahrani indicates that it is the adjudicators. This is usually handled by veteran, skilled adjudicators. Our guideline is when in doubt, rule for the claimant. On a first incident that is not too obvious or egregious, we give them a warning with a letter of direction. Over 1,700 or 28% of the determinations we issued were simply warnings. We issue 9,000 to 11,000 determinations per year that are notices of overpayments where we do not do an investigation of fraud. For those, we tell them they have an overpayment and warn them not to do it again. They are not included in here.
Question (Haine): If someone reports their estimated wages and the employer reports it was somewhat different, do you send a letter of direction to the claimant?
Mr. Shahrani indicates no, in that case we would simply correct the record with the wages from the employer and send a notice to the claimant that this results in an overpayment. We would withhold it from the next check. We do not consider that they attempted any concealment.
Question (Haine): You deduct it from their next check, and they could appeal that if they disagree?
Mr. Shahrani indicates yes.
Comment (Buchen): All the neighboring states have prison terms.
Mr. Shahrani indicates that you can get up to 90 days in Wisconsin. In Georgia, the law is one act of fraud, one year in jail. Someone was sentenced to 26 years in jail for 26 weeks of fraud. We are not suggesting going anywhere near there, we are not suggesting increasing prison terms, disqualification from the first act, or reduction of benefits or cancellation of wage credits. We are simply proposing that for those who do not heed all of the warnings that we give them, we have to make it progressively more difficult.
Question (Haine): From an employer’s perspective, we do not want to see the overpayments and the benefits paid inappropriately. This is a simplification. Why does the fiscal show an increase in uncollected overpayments and forfeitures?
Mr. Shahrani indicates that the purpose is to prevent the overpayments in the first place. If you do not, those who defraud you will go away for a while and then come back. Some of it may have been paid or offset, but some gets written off. We want to increase the penalty for deterrence.
Question (Penkalski): Is this the standard appeals process for this?
Mr. Shahrani indicates yes, either the claimant or employer can file an appeal.
Comment (Penkalski): I still have a concern that the employer who colludes with an employee does not have a penalty as severe as the 6-year penalty for the employee. The employer just gets caught with the penalty for the weeks overpaid. Why are they not penalized some way for six years? It does not seem fair.
Mr. LaRocque indicates that there are criminal penalties in the statute for false statements made by any person, employer or employee or any person answering a question in an investigation. However, finding the proof of the employer’s involvement is a challenge.
Mr. Bergan indicates that in the instances we find it, it may be helpful to have a means of prosecution and to do it with some visibility so people know this is enforced. If we increase penalties on both sides, that would be fine. Mr. Bradley indicates that there is a penalty for employers up to the amount of the overpayment. Ms. Breber indicates that aiding and abetting is something the department addresses when we become aware of it, but someone has to tell us and if they do not, it is hard to know it is happening.
Question (Buchen): Typically, is this for the third time someone has been caught?
Mr. Shahrani responds that these determinations are three events. Any and all actions occurring prior to the first determination will be at that same level. Even if two or three events are discovered later but they occurred prior to the first determination, they will be at the first level penalty. A second level determination can only occur after a first level determination has been issued. If you commit fraud after you receive the first determination where you have been penalized and warned, then you will be penalized at the second level.
Question (Penkalski): Is there a time bar between the levels? Can the three events take place over 25 years, for example?
Mr. Shahrani indicates yes, but he does not expect many claimants to arrive at the third level. If you have gone through the first two levels, you should have the message.
D07-07 Phase in electronic reporting.
Troy Sterr, of the Bureau of Tax & Accounting, presents the proposal and table that outlines the proposed changes, and hands out a summary of the proposal. Currently, the division receives about 3.2 million wage records every quarter and many of those records are received electronically. Of about 130,000 employers, about 70% are already reporting electronically. We have about 40,000 employers still filing reports on paper. Our proposal is looking at phasing in electronic reporting requirements over a three-year period.
In the area of the wage report, there was a law passed requiring employers of 250 or more employees to report electronically. In 2001, this was lowered to 100 employees, and in the last bill cycle this changed to 75. We want to lower that in October 2007 to 50 employees which will affect about 350 employers. In October 2008, we would lower the threshold from 50 to 10 employees and require all new employers to report electronically. This will impact about 7,300 existing employers and 12,000 new employers. One of the reasons for this change is for program savings, such as the cost of printing and mailing the tax reports and having them keyed by a prior vendor. By lowering this threshold to 50, we save about $25,300. About 2/3 of this savings is postage; beginning in October 2007, the Department of Labor will no longer reimburse the department for postage. The threshold lowering occurs in the month of October which is continuing what was done in the last bill cycle. Every October we will lower the threshold until 2010 when all employers will be required to report the wage report electronically. In 2009, the threshold will drop from 10 to 4 employers. This will impact 11,500 existing employers and 12,000 new employers, with an administrative savings of $65,200.
In 2010, when all employers report wages electronically, we eliminate the tax report. Employers will no longer compute the tax and file the tax report. Instead, the department will take the wage information and calculate the tax due and provide the tax amount to the employer. Of the 40,000 employers still reporting on paper, about half of them will be impacted in 2010, or 20,700. The administrative savings will be $281,100. We currently have a scanner to image tax and wage reports, which is about $144,000 annually. With this change, we will have saved $371,600 over three years and have annual, ongoing savings of $281,100. We are trying to reduce the reporting burden on employers by eliminating the tax report, calculating the tax automatically to reduce the problem of employers miscalculating or overpaying taxes due. Another concern with this proposal is improved security. Reporting electronically can be more secure.
In 2010, we would also eliminate all physical media, meaning we would no longer accept CDs or tapes or disks. The reporting would have to be done on line. We are also looking at the option of an IVR for employers to report by using the telephone if they do not have access to the internet. This is an option that Minnesota has for its employers. In 2004, Minnesota required all employers to file wage reports electronically as of July 2005, and also did away with their tax report. In January of 2005, they had about 42% of employers using the e-filing system; by July of 2005, they had almost 99% compliance with electronic reporting. They put forth a massive change and implemented it in a very short time.
All agents are already required to report electronically. We are not proposing any changes to that. For tax electronic reporting for agents, as part of the last bill cycle, we required agents with less than 25 clients to report using the internet. If they had 25 or more clients, they had to report using a medium approved by the department. We are proposing to move those thresholds so that agents with less than 10 clients must use the internet and those will more than 10 clients must use a medium approved by the department. Agents that are in that gap are telling us they would like more flexibility in filing these using the internet. By 2010, we are eliminating this report.
The incorrect media penalty is $25 per employer. We are not proposing to change this until 2010 when we eliminate the incorrect media penalty for tax reports as the tax report is eliminated. The incorrect media penalty for wage is currently $10 per employee. We want to encourage compliance as we phase in the electronic reporting so we will increase that penalty per employee. In 2008, we would increase this to $15 per employee and in 2009, increase this to $20 per employee. We will eliminate this penalty in 2010. This will add additional revenue the first year of $112,00 and the second year of $218,000. This would end in 2010.
The wage late or missing penalty is currently $25 for employers with 1-100 employees, and $75 for employers with more than 100 employees. We are proposing one penalty of $50 per report for all penalties to start in October 2008. We have just about 11,000 penalties per quarter. Most of those are from employers with fewer than 100 employees and we want to encourage compliance with them. These penalties go into the interest and penalty fund which we currently apportion for system maintenance for tax and accounting systems. The current maintenance budget for tax and accounting is about $1.2 million; when SUITES is implemented, the maintenance costs will increase to $1.8 million annually. Any additional penalties we collect would go toward maintenance of the tax and accounting system.
Currently, reports and payments are considered timely if postmarked no later than the due date, or the department receives the report or payment no later than three business days after the due date. We are proposing to modify this starting in October 2008 so that these will be timely if received on or before the due date. For calendar year 2006, about $360 million of the tax payments that came in that year came during the grace period. That represents about 55% of all tax payments in 2006. If we make the due date the end of the month, we will have annual interest earnings of $200,000 which will impact the trust fund. Also, relying on the postmark to determine if the report or payment is timely does not make sense if we are going to electronic reporting. It also becomes cumbersome for our staff to pull the actual envelope to check the postmark. When the payment comes in to the bank, they have to keep the envelope, write the employer’s account on it and send it to the division to have it on hand to determine if a payment was timely. This is a very cumbersome process.
We currently do not have any requirements in the law for electronic payments. We are proposing that starting in April 2009, all agents must pay electronically. Also, any employer with a contribution amount of $10,000 or more in the previous calendar year will be required to pay electronically. We have seen other states start to require electronic payment. Minnesota requires all agents to pay electronically, and all employers with 500 or more employees must pay electronically. The Wisconsin Department of Revenue already requires employers with an income tax withholding of $10,000 in the previous tax year to pay electronically.
Finally, the electronic tax payment penalty is to encourage compliance with electronic payment. We look to assess a penalty equal to one half of one percent of the total contributions due for that quarter or $50, whichever is greater. This will impact 400 employers in the first year, and 100 each year beginning in the second year. This will generate $90,000 in the first year and $30,000 each year after that.
Question (Lump): Do you have any idea how many employers in 2008 will actually be able to comply with this requirement easily? How do we find out if this is a population that is ready, willing and able to do this? Have you thought about surveying employers?
Mr. Sterr indicates that it will depend upon their ability to access a computer. We have not surveyed employers. Ms. Reid indicates that they reviewed Minnesota’s data. Minnesota’s employer breakdown is very similar to Wisconsin. They have been very successful with the electronic reporting and payments. We began looking at this because other states have been going down this path. Mr. Bergan indicates that the department has been trying to make sure with SUITES that even people without a lot of sophistication can be able to do this on line.
Comment (Lump): I think employers would welcome this if they have a computer. I am hesitant about this. The income tax may not be a good example because it is a different structure and may be prepared by someone else for a small business.
Mr. Bradley indicates that for employers without computers, Minnesota implemented an IVR telephone system to report. They had the same concerns, but employers were able to use the on line system.
Question (Buchen): Regarding the chart, it appears there are about 500 employers that employ between 50 and 75 people for the change noted on tax and wage electronic reporting. In October 2006 it lists 870 employers and in October 2007, it lists 350 employers affected. Is that correct?
Mr. Sterr indicates that this figure is for employers within that range that are not already reporting electronically, and this is true for the other numbers as well. There are about 130,000 employers. Ms. Ried indicates that the department keeps track of comments that come over their QWTRS application and most employers think the internet is much easier.
Question (Penkalski): Is $50 enough of a charge in 2008 for missing or late wage reports to cover the costs of collection? Who pays the charge, an employer or agent?
Mr. Sterr indicates that the department has not done a cost benefit analysis on time spent on this. Mr. Bradley indicates that the agent pays the penalty.
This was discussed in Mr. Bergan’s opening remarks.
Mr. LaRocque indicates that the Department met with staff of Senator Coggs and talked over the questions that had been posed by Mr. Robert Andersen and the department’s response to those questions. The rule has been formally returned to the Senate Labor Committee and is on its way to the Assembly Labor Committee. The time for passive review in the Senate runs 20 days after its submission.
Question (Buchen): Did you get any indication that there will be any further action on this in the Senate?
Mr. LaRocque: We were told that it is not likely there would be further action as far as Senator Coggs is concerned.
Comment (Neuenfeldt): That is correct. I talked with Senator Coggs and he has said it is fine.
Mr. LaRocque indicates that Mr. Lump would like some discussion regarding approved training.
Comment (Lump): I would like to see a report. In an example, an employee worked for a seasonal employee and was laid off. The employee also attended a technical college in an unrelated field. He received UI benefits. When the employer opened for the new season, he offered a job to the employee to come back. The employee turned it down. The employer protested at that point and found out from the department that the employee is entitled to collect benefits under the law and could do so up to two years in a technical college. The employer thought this was egregious and asked me to bring the issue forward. I understand there is a federal conformity issue. The question is do we have to provide it for two years? Are we setting up a scholarship program? I would really like to know the history of state action on this and what our options are if we want to change it. I would like some discussion and analysis. I am not opposed to employees bettering themselves, but the question is whether the UI system is designed to pay for this over a long period of time.
Mr. LaRocque indicates that we will take a look at this, analyze it, and also take a look at the federal requirements and the extent of the conformity requirements. Ms. Breber indicates that right now we do not have a two year limit on training, as long as the person is not going to school for a higher degree, the training can be approved. In terms of how much in benefits someone can collect, that still depends on how much the claimant worked. The approved training provision does not say that you get to collect for a period of time; it just says what is approved. The length of time of training is what has been changed many times over the history of this section.
Question (Buchen): Did we amend the definition of approved training a few years ago?
Ms. Breber indicates that the changes dealt with trade and dislocated workers. The protection was extended to other department approved training in the last bill cycle. Mr. Shahrani indicates that it would be the exception for someone to be in approved training and continue to receive benefits in successive benefit years. If they do not go back and work and earn wage credits, they will not have benefits and cannot establish a new benefit year. This would be the rare exception to have back-to-back benefit years on this.
No comments.
Motion (Neuenfeldt), seconded (Buchen), to go into closed session to discuss the trust fund, options for improving stability of the trust fund and law change proposals pursuant to section 19.85(1)(ee) of the Wisconsin Statutes. Motion passes unanimously. Closed session deliberation by the employee members of the council and the employer members of the council, respectively, begins at 11:47 a.m.
Meeting is adjourned.
Updated
April 30, 2010
Unemployment Insurance Division,
Bureau of Legal Affairs (BOLA)