The Colorado Department of Labor and Employment corrected a programming error that led to overcharges for unemployment insurance premiums totaling $5 million last year. The issue was brought to the department’s attention by the Office of the State Auditor.
The audit revealed that 30,000 employers had incorrect rates. Notably, the auditor’s report indicated that the Labor Department had not notified employers who overpaid by the time the audit was completed.
This finding was part of a broader statewide audit that the Office of the State Auditor presented to state lawmakers on Wednesday. Other significant discoveries included more than 4,100 employers who had not contributed to the state’s newer paid-family leave program and the improper recording of $127 million in refunds to employers who opted out after paying because they used a private plan.
Philip Spesshardt, the division director of unemployment insurance, informed the Legislative Audit Committee that the unemployment insurance overpayment arose after the state updated its computer system. The error occurred within the “employer experience rates,” which are adjusted annually based on the number of claims a company’s employees have filed. Spesshardt stated that the Labor Department concurred with the audit’s findings.
“What will happen is for those that we owe refunds on — and as the auditor has mentioned here, it comes out to roughly $166.67 per employer … we will provide those refunds,” Spesshardt told the committee. Approximately 13% of employers were affected.
According to a previous Colorado Sun article, in July, nearly 220,000 private employers were registered in the FAMLI program, with 3.2 million eligible workers. At that time, 5,155 employers were enrolled in one of the 20 private plans approved by the state, representing roughly 2.4% of total employers.
The agency is working with its vendor to make final adjustments by May 7. Spesshardt expressed optimism that the fixes would be in place by the end of June, in time for the state’s unemployment trust fund health check, which determines the following year’s rates.
Employers who underpaid due to the error will not be penalized for the agency’s mistake. However, they must pay the difference between the premium billed and what they actually owed. Spesshardt said they can request a payment plan.
Tracy Marshall, the division director for the Family and Medical Leave Insurance program, stated that her department would work with employers who had not paid their share of the FAMLI program, although penalties and interest would apply.
The Colorado Department of Labor and Employment office in Denver’s Capitol Hill neighborhood on Dec. 8, 2024. (Tamara Chuang, The Colorado Sun)
Employers and workers began contributing to the paid-family leave program in 2023, although benefits were not available until last year. Employers with 10 or more employees split the cost at a rate of 0.9% of an employee’s paycheck. Employers with nine or fewer employees are responsible for half the amount, or 0.45%, and their workers are not expected to contribute.
At the end of fiscal year 2024, FAMLI had a fund of $1.3 billion and over 216,000 registered employers.
Additional issues noted in the audit included the $127.7 million in improperly recorded refunds after some employers opted out of FAMLI due to having a private plan. This resulted in an overstatement of revenues for the labor agency’s fiscal years 2023 and 2024. The Labor Department addressed these issues after their discovery.
Another ongoing concern is determining why more than 4,100 employers have registered for FAMLI but have not paid any premiums. The auditor’s office also found that the Labor Department hasn’t analyzed how many employers haven’t even registered for FAMLI and “hasn’t developed a plan on how to identify employers that have not registered but are required to do so,” according to Ferminia Hebert, an audit manager for the state auditor’s office.
Marshall noted that FAMLI had a 78% employer compliance rate as of Tuesday. However, she added, “There’s no one report we can go out to see the exact number of employers that have employees working within the state of Colorado. That’s a much more difficult number for us to get to.” Her department is collaborating with the Labor Department, the Department of Revenue, and the Secretary of State’s Office to address the issue.
Officials from the Labor Department stated that they agreed with all the auditor’s findings and are in various stages of implementing the necessary corrections.
