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It is hard to read any news these days that does not speak about unemployment related to COVID. Unemployment insurance benefits are front and center in helping individuals who have lost their jobs due to the pandemic. The volume of cases coupled with the rise in fraudulent filings make it more important than ever for PEOs to ensure they have in place strong policies and procedures surrounding UI.



While the Coronavirus Aid, Relief, and Economic Security (CARES) Act provided federally funded increased and expanded benefits, each state’s treatment of charges incurred due to claims filed because of COVID-related shutdowns or issues will differ. Many states announced early on that COVID-related layoffs would not be charged against employers for the purpose of calculating the experience rating that determines their UI rates. However, quite a few states, awaiting a change in policy or executive order, delayed their decisions. Still others subsequently reversed a previous decision to include COVID-related claims in the UI experience rating. These states reversed that decision only after claims were already applied to employer accounts. 

Most recently and as communicated by the NAPEO State Government Affairs Committee on January 19, 2021, New York State announced that unemployment accounts would not be charged for COVID-related claims, retroactive to March 2, 2020, and further that charges previously charged to the employer account would be cancelled and applied to the general account. Luckily, this came before the issuance of 2021 rates in March, which should give the state ample time to adjust employer accounts. However, this may not be the case in other states.



Fraudulent unemployment claims are also on the rise. Due to the pandemic, many states lifted their standard qualifications, making it easier for fraudsters to access accounts. Additionally, increasing state unemployment benefit amounts by the $600 per week federal benefit made UI accounts more appealing and opened the door for unemployment programs to become prime targets for scams and fraud. In January 2021, the Department of Justice, U.S. Attorney’s office in the Eastern District of Michigan reported that three defendants have been charged in two new unemployment cases exceeding $630,000. The fraudulent unemployment claims were filed in multiple states, including Michigan, California, Arizona, and Nevada. The defendants filed the charges under their own or similar names.1 That same week, California announced that three people pleaded guilty and have been sentenced for unemployment fraud amounting to approximately $2 million. The defendants filed in excess of 300 claims using identities stolen from unwitting victims.2

For these reasons, PEOs must pay close attention to UI claims, particularly in states where UI is charged at the PEO level (often referred to as PEO SUTA states). The burden falls to the employer, in this case the PEO, to carefully audit charges and identify any mistakes. 

The first step is understanding the rules surrounding claims filed due to COVID-related issues for each state where you are doing business. Be cognizant of time limits imposed by each state for disputing charges to UI accounts. Texas, for example, requires employers to protest erroneous charges within 30 days of receipt of the benefit-chargeback statement. 

If the PEO outsources claims management to a trusted partner, that partner will have access to UI claim data, reports, etc. on its online portal. PEOs that use the Unemployment Insurance State Information Data Exchange System (UI SIDES) can access the information there. Lastly, the PEO can look to the quarterly benefit statements for an itemization of unemployment claims. 

Communicate with your clients the need for diligence in timely reporting of employee terminations. Ensure that the payroll department is reviewing payrolls closely for active but unpaid employees and investigating. This will help with claims review and accuracy.



Now is the ideal time to put a program in place or review your existing program. A solid UI management program helps to reduce risk by evaluating prospects, protecting the PEO in the client service agreement (CSA), educating new and existing clients on proper termination and documentation methods, providing accurate and timely documents to state UI agencies, performing detailed rate evaluations, and filing complete and on-time quarterly returns. 

Some components of the program include:


The UI Team

The UI program requires a leader and support from multiple departments:

  • Onboarding;
  • Human resources/customer service;
  • Payroll tax;
  • Compliance; and
  • Accounting.


    Client Service Agreements

    Client service agreements should outline the client’s responsibility surrounding UI and are designed to protect the PEO in the event the client fails to, among other things, report terminations timely or provide accurate or timely responses to unemployment documentation requests from state agencies. Failure to follow UI integrity laws could lead to fines and penalties from state unemployment agencies. 

    Client Evaluations

    Prospective clients should be evaluated to determine their states of operation and the effect they may have on the PEO’s SUTA rate. Beyond a client’s current UI rate, things such as industry and geographic location can be indicators of risk. It is common to request current UI rate cards for each state as well as the most recent quarterly tax return filings from prospective and new clients. The quarterly filings are particularly important for client SUTA states and even more so when a new client comes on mid-year or mid-quarter. This information will be needed to assume the filing on behalf of the client. 

    Rate Protection

    State unemployment rates should be reviewed annually. In addition to the claims review outlined above, PEOs should analyze claims by client to identify use and trends. Clients that have excessive claims may require education on hiring, documentation, UI integrity laws, and termination practices. Create a webinar or program around these topics and consider requiring new clients or clients with excess claims use to attend. 

    Further, rate reviews can be performed to determine if a buy-down would have a return on investment for the PEO.

    The rise in COVID claims has highlighted the need for increased attention to state unemployment. Improper management can lead to rate exposure and potential losses for the PEO, but creating a solid UI program, inclusive of detailed claims review, will help protect the PEO from improper or even fraudulent charges to UI accounts.





    PEO Advisory Services, Inc.

    Nesconset, New York




    The U.S. Bureau of Labor Statistics publishes statistics about state unemployment insurance at, including maps showing:

    • State unemployment rates;

    • 12-month change in unemployment rate and number of unemployed by state;

    • State unemployment rates animated over the past 10 years;

    • Change in non-farm employment by state; and

    • Employment by state.


All are seasonally adjusted.


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