According to WCSH in Maine, the Maine DOL overpays $1 for every $5 spent on unemployment claims by the state. In the end, that is an annual overpayment of roughly $33 million.
Here is their report.
The unemployment system is set up to help unemployed workers maintain an economic standing during a layoff and it often gives them the benefit of the doubt. In Maine’s case, the unemployed file claims and can start receiving benefits before their claim is verified. If an unlawful claim is paid out and not caught, the liability travels to the former employer(s). They are then responsible for the bill. A liability that in the end affects the amount of SUI taxes they owe the state.
States try hard to avoid over-payments, but many departments of labor are under-funded making mistakes more prevalent and fraud more successful.
But not all employers have to suffer with the inefficient state system. 501(c)(3) organizations don’t have to participate in the state system. They can opt-out of the state unemployment insurance tax system and become reimbursing employers. Doing so can provide them additional financial flexibility and cost savings.