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Identity Theft and the Unemployment System
How to protect your company and employees
Identity theft is on the rise, and the unemployment system isn’t immune from the effects. There has been a marked increase in unemployment insurance (UI) claims filed under the name and SSN of employees who are still employed, and obviously didn’t file them.
This is a huge problem not only for the employees who are the victim of identity theft, but for their employers and the state UI trust funds. In some cases the con games involved are extremely elaborate, with entire rings dedicated to filing fraudulent UI claims.
What are the signs of a fraudulent UI claim?
- Most common: The employer receives notice of a claim under the name and SSN of current employee who has no changes in employment status
- An individual files a legitimate UI claim and finds that one already exists
- An individual begins receiving demands from the state with threats of garnishments, fines and interest for repayment of overpaid benefits they never filed for or received
- An individual receives tax information from the IRS reporting UI benefits paid
How does a fraudulent UI claim impact a company and employees?
- If not caught, a fraudulent claim will result in unwarranted benefit charges.
- For merit rated employers, it may mean an increase in tax rate. It would take a lot of unemployment expense for a major rate increase to occur. But, if you’re right on the borderline of a rate in the rate reserve ratio system, an extra $10,000–$20,000 in UI costs could have an impact on your tax rate that’s unwarranted and unnecessary.
- For reimbursable employers, like nonprofits, not-for-profits and governmental agencies, it could result in being charged fraudulent benefits. This is a bigger problem because a fraudulent claim is an immediate dollar-for-dollar hit every time you have a UI claim against you.
- There is a cost of time and energy, especially for employees. The system allows the employer to find relief from a fraudulent claim more quickly than the employee. The employee has to deal with the underlying problem that someone has stolen their identity and has their personal information. Even though your company is going to get off the hook quickly for the fraudulent claim, you’ll still have an employee who, in the interest of being a good employer, you’re going to need to help navigate through the process of trying to avoid any more damage to their identity and credit.
- It creates an employee issue that may have a lingering impact. An employee whose identity has been stolen is quite justifiably going to be stressed. Scheduling needs may change as the employee must make calls and appointments to deal with the issue.
- For employees, a fraudulent claim may result in overpayments, garnishments and other legal problems if not caught and properly addressed in a timely manner.
What should employers and employees do if they are a victim?
- Employers should immediately file a protest to the claim stating that it’s fraudulent, and that the employee has not filed a claim.
- Contact the state DOL and file a fraud report. Each state now has a department dedicated to UI fraud; you can find yours here.
- Immediately report the incident to the police. Even though many police departments don’t know what to do with the report after it’s filed, identity theft experts still recommend this step because it creates a legal record of the fraud. Identity theft victims need to lay a legal foundation to help get out from under any fines, expense or legal entanglements caused by the thieves.
- The employee should file a fraud alert with at least one of the credit bureaus. Filing with one should take effect for the other two as well (but it’s smart to double-check). This is important because in order for the UI claim to go through, the thief must have had at least the victim’s full name and SSN. More often than not, they’ll have more than that. They can do a lot of damage in other areas besides the UI claim.
- The employee should file a fraud report with the IRS, whether or not a fraudulent UI benefit payment has already been made. If a payment slips through the cracks somehow, having a fraud report filed will help the employee avoid the entanglement of having to pay taxes on a 1099 form. Use this link to file an Identity Theft report with the IRS: https://www.irs.gov/identity-theft-fraud-scams/identity-protection/
- The employee should file a fraud report with the Federal Trade Commission (FTC). Their website IdentityTheft.gov goes through the steps to report and has many other resources for identity theft victims.
How to prevent fraudulent UI claims
Fraudulent UI claims are most often discovered by the employer when a claim comes in for a current employee. Vigilant and proactive claims management goes a long way in spotting these claims and getting them resolved before they hit your account. For employers who use a claims management service like UIS, we monitor on a daily basis and catch any potential problems right away. We also help employers and their employees through the reporting and recovery steps above.
Unfortunately for the employee, the fraudulent claim may be the first indication that their identity has been compromised. Identity protection experts recommend careful review of annual credit reports as well as proactive monitoring of credit and identity. There are paid services as well as free alternatives. While we don’t have specific recommendations (and the needs of every individual are different), the FTC website has several good resources on how to protect your information, including a review of different monitoring options.
Get proactive with your UI claims management. As a provider of complete unemployment cost control services, we can handle problem claims and take that hassle and burden off your hands. Contact us today!
About the Author
Jeff Oswald is the President of Unemployment Insurance Services. In nearly twenty years of managing UI accounts on behalf of businesses, he has participated in thousands of unemployment hearings.
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