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5 Unemployment Audit Triggers

By July 11, 2019August 30th, 2021No Comments
unemployment audit triggers

Since DDI has been in business, we have seen and managed hundreds of audits. The vast majority of these audits have been led by the State’s department regulating unemployment insurance. In almost every case the initial audit notice has stated something to the effect of “Your company has been randomly selected for audit by the <insert regulatory agency here>.” If you’ve been audited you can rest assured that there was nothing random about it! In virtually all cases, at least one event triggers an audit. Below are the top five unemployment audit triggers.

1. Obstructed Unemployment  Claim

If you use contract labor for any significant period of time, at one point or another you received an unemployment claim from a former contractor. Typically, the individual filing the claim is aware that they were an independent contractor. Thus, they further understand that they do not qualify for unemployment. That doesn’t mean however that they won’t attempt to collect it. They have themselves and possibly others to house and feed.

In many cases, when you return the claim form asserting that the individual was not a W2 employee of your firm, the State will deny the claimant benefits immediately. You’ll never hear about them or their claim again. However, in some instances the claimant will not go quietly into the night. They have the right to appeal the decision by filing a petition or calling the unemployment representative assigned to their claim. Through the petition process, it is likely that the claimant will share all sorts of details about the work. These details can include what they did with or for you, their perception of the nature of the relationship, etc. When this occurs an audit is nearly unavoidable.

2. Quantity of Obstructed Claims

High turnover in your contractor program, particularly when you are the party ending most of the contractor relationships, puts you at risk of having multiple unemployment claims filed against you. In most States, when a company receives a significant number of claims in a short period of time (usually a fiscal quarter) and those claims come back obstructed (meaning your response is that the claimant wasn’t an employee, or is ineligible for other reasons), an audit is triggered by whatever software the State uses to manage and administer its program. 

3. Industry Focus

It isn’t uncommon for a State to target specific industries after reclassifying a company’s workforce from contractors to employees within that industry. DDI’s headquarters is in the State of California which is notorious for doing this. If a local messenger service is audited and ultimately reclassified, the auditor may look for other messenger services in the area and initiate investigations against those firms.

4. Disgruntled Contractors

Never before has the general public been as aware and educated about labor law, the controversy around worker classification, etc. Plaintiff law firms are paying for ads on social media looking for plaintiffs and claimants to join or initiate class action claims against gig companies. Uber, Lyft, Doordash, Grubhub, Postmates, and Instacart are ALL in the news for their treatment of independent contractors. Independent contractors that become disgruntled with their companies for financial reasons, reasons related to treatment, etc. are always a threat. DDI has seen several cases over the years in which disgruntled workers have maliciously contacted various regulatory agencies in an attempt to initiate investigations against the companies they’ve worked with.

5. Wage-Based Claims

Today, when a worker files for unemployment in almost any State, even when the claim is for a W2 job they were laid off or terminated from, they’re almost always required to list ALL companies they worked for/with over the past 12, 24 or 36 months. In many cases, with no malice at all, workers are listing contract jobs. The risk to companies using contractors is that the number of claims filed against their firms has increased exponentially. This increases the number of obstructed claims, which are an auto-trigger for audits in many States.

The likelihood that your company will be audited by your State’s unemployment department has never been greater. It’s important to operate a compliant model and establish the proper relationship with your contractors. For example. a business relationship that can be substantiated by evidentiary support. DDI’s program is designed to do just that!

PARTNER WITH DDI

Protecting your business is never an easy feat, which is why Delivery Drivers, Inc. (DDI) offers a variety of insurance options, 1099 compliance services, and risk management solutions. DDI offers expertise on risk management for contractors from the beginning including self-employed injury insurance called OCC/ACC to protect driver-partners for an injury sustained while on the job.

To discuss further or if you have any other questions related to independent contractor compliance, please contact DDI today. If you are interested in becoming a client, visit our Contact Page and a representative will be in touch with you shortly.  Let DDI help you take your business to the next level today.