Unemployment Insurance Fraud

Examples of Employer Fraud

• Helping another person file a false claim

• Paying employees secretly (off-the-record, off-the-books, or under-the-table) or not properly reporting their wages

• Not reporting new employees upon hiring

• Reporting incorrect start dates for employees

• Misclassifying employees (W-2) as independent contractors (1099) to avoid paying UI contributions

• Failing to report or inaccurately reporting employee wages

• Moving workers between employer payrolls to incorrectly qualify for a lower UI contribution rate

• Providing false information to prevent a claimant from receiving benefits

• Failing to pay UI taxes
  

• Failing to file reports

Employers can prevent fraud and strengthen the integrity of the UI program by following these guidelines:

Proper Classification of Workers

• For tax purposes, an employer must classify its workers as either employees (paid on a W-2 form) or independent contractors (paid on a 1099 form). Employers are required to pay unemployment tax on employees' earnings but not on independent contractors’. If a worker is misclassified as an independent contractor, unemployment taxes will not be paid and the worker's wages will not be reported. A wage and liability investigation of the employer will be initiated by OUI to determine proper classification. If OUI finds that misclassification occurred, the employer may be liable for payment of all back taxes with interest and penalties.

Review Quarterly Statements of Benefit Charges

• At the end of each quarter, most employers receive a copy of all UI benefits charged against their account for that quarter. Please review all benefit charges carefully, as they will affect your future unemployment tax rate. If you disagree with any of the benefit charges or find any errors, you must protest the charges within 30 days of the date the notice is mailed. You may submit your protest online using Kentucky's Unemployment Insurance Self-Service website.
  

Respond to Notice of Claim Filing and Request for Separation Information

• When a former employee files for UI benefits, you can inform OUI of the reason the individual is now unemployed. You must respond to the department within 10 calendar days of receiving the notification to prevent a former employee from wrongfully receiving UI benefits.

Provide accurate wage information

• Providing OUI with accurate wage information for your workers ensures that individuals are paid the correct amount of UI benefits.

Refrain from engaging in tax manipulation schemes

• Under the experience rating system, employers pay unemployment taxes at rates proportionate with claims activities by their employees. Employers with high unemployment activity pay higher unemployment tax rates, and employers with lower activity pay less. Employers who engage in SUTA Dumping or other tax manipulation schemes to avoid paying their fair share unfairly shift their costs to other employers.

Respond to Unemployment Insurance cross-match audits

• The OUI conducts random cross-match audits of claimant accounts four times a year.  By responding to these requests for wage and possible separation information, you are helping to protect the integrity of the KY UI system. ​