I’m possibly facing an uphill battle here – how in the world will I convince public entity risk managers that their internally driven unemployment activity is a part and parcel component of the larger risk management function?
As a start, I should probably define “internally driven unemployment.”
In a nutshell, this refers to the benefits due to employees of your public entity that are terminated, separated, laid off, are seasonal or willfully resign and may be eligible for unemployment benefit insurance – defined as :
Unemployment insurance is intended to provide temporary financial assistance to unemployed workers who meet the requirements of State law. Each State administers a separate unemployment insurance program within guidelines established by Federal law.
This serves as a sensible and appropriate safety net for your employees who are laid off or separated from employment. But how does unemployment insurance cross into the world of risk management? Why does it even matter? Don’t I have enough to do already?
I’ve had conversations with local government risk managers who assure me that the unemployment function within their entity or amongst their member groups is managed by their personnel department. In talking with the personnel departments, I’ve been told it’s a finance-managed function. What does finance say? Not much – they usually claim to be too busy to respond. Others have echoed my sentiments above – it’s a benefit that needs to be paid out, so why does it matter?
Sounds to me that it is not being managed and sounds as if it is grossly misunderstood. Personnel/HR might hire and fire; Finance may pay the tax bill; but nobody is managing the exposure – and indeed, there is a significant financial exposure linked to unemployment benefits.
How is your entity addressing unemployment exposure? Who does that control sit with? In reviewing a number of local government Comprehensive Annual Financial Reports (CAFR), I’ve been hard-pressed to find any mention of the expense related to unemployment. I can guarantee you that it can be significant and presents plenty of opportunity for control and cost-minimization.
Here are some factors that lead me to this belief:
- The majority of states report improper and excess unemployment payments at a rate that exceeds 6% with a good number of states showing improper payments at a rate of 14% or more (https://www.dol.gov/general/maps)
- A review of the most recent Bureau of Labor Statistics data specific to entity type shows state and local governments, on a national basis, shedding employee counts – over 17,000 public entities show a decrease in employee count from Q1 to Q3 2017 (https://www.bls.gov/cew/datatoc.htm)
- Based on the presumption that your entity has unemployment claims, it is generally accepted that for every $1 dollar in benefits paid out, there are additional state and federal tax burdens that multiply that out to a $3 dollar charge back to the entity. Not to mention, an increase in tax rate for potentially heavy unemployment activity (you may wish to try this SUTA calculator to better gauge costs: https://www.staffmarket.com/tools/suta-turnover-calculator ) and the potential of additional costs for seeking a replacement employee.
As a long time risk manager, including time spent in the public entity trenches, I’ve come to realize that an unemployment claim, similar to any of the claims a public entity sees on a daily basis (workers’ comp, general liability, employment practice liability, auto or property claims) can benefit from solid risk management techniques that control and minimize the impact on entity revenue.
Do you care about unemployment activity and expense? Where does the oversight function sit in your entity? Is it managed? Is there an integrated approach to unemployment management?