The Employment Security Department says it has reshaped its employer-auditing program as part of its efforts to make the unemployment-insurance system more equitable for employers across the state.
The department is now focusing its audits on employers and industries that are more likely to misreport information or file incorrectly.
When employers do not report wages and hours correctly, benefits for unemployed workers may be calculated at a higher rate than warranted. It can also lead to higher socialized tax rates. In both cases, the additional costs are shared by all employers, even those who filed their own reports correctly.
"A fair and equitable unemployment-insurance system is important to Washington business and helps to move our state forward in the global economy," said Gov. Chris Gregoire. "The majority of Washington businesses pay their fair share. By redesigning the auditing process, we are making sure these good employers are not punished for the actions of a few."
In addition to using its own records, Employment Security cross-matches files with the state departments of Labor and Industries and Revenue and with the federal Internal Revenue Service to identify candidates for audit.
"It makes sense to invest our limited staff time where the problem is the greatest," said Employment Security Commissioner Karen Lee. "It's a smarter way to work and we expect to get better results."
Employment Security conducts audits on roughly 4,000 Washington employers each year. Audits include a review of payroll, financial and business records. The goal is to ensure that employers report hours and wages correctly and pay the appropriate amount in unemployment taxes.
The department began phasing in the new audit selection process in February 2006. Prior to that, the employers were selected randomly for audits and Employment Security auditors typically identified about $250,000 a year in unpaid or underpaid taxes.
With the greater emphasis on high-risk employers, the department expects to uncover significantly more unpaid unemployment-insurance taxes, said Lee. Meanwhile, 10 percent of all audits will continue to be selected on a random basis to make sure all businesses have a chance of being audited.
Employers that are concerned about reporting issues can request a voluntary audit. If the review uncovers reporting errors, the employer will have to pay all taxes due and any associated interest charges, but will not be charged late-payment penalties. Employers can contact the local district tax office for more information.
