Colorado overcharged businesses $5 million for unemployment insurance last year. It’s getting refunded.

A programming error that overcharged thousands of employers a total of $5 million for unemployment insurance premiums last year was fixed after the Office of the State Auditor brought it to the attention of the Colorado Department of Labor and Employment. 

But others had underpaid. 

In all, 30,000 employers were identified as having an incorrect rate. And yet, the auditor’s report noted, the labor department hadn’t notified employers who had overpaid by the time the audit was completed.

The finding was one of a handful in a statewide audit the Office of the State Auditor shared with state lawmakers Wednesday. Other findings included more than 4,100 employers who hadn’t paid a cent into the state’s newer paid-family leave program, and improper recording of $127 million in refunds to employers who had paid but were allowed to opt out later because they used a private plan.

Philip Spesshardt, division director of unemployment insurance, told the Legislative Audit Committee the unemployment insurance overpayment occurred after the state upgraded its computer system. 

The error was in the “employer experience rates,” which are raised or lowered annually based on how many claims a company’s workers have made.  

Spesshardt told the committee the labor department agrees with the findings. “What will happen is for those that we owe refunds on — and as the auditor has mentioned here, it comes out to roughly $166.67 per employer … we will provide those refunds,” he told the committee.

About 13% of employers were affected one way or another. 

In July,  there were nearly 220,000 private employers registered in the FAMLI program and 3.2 million eligible workers, according to an earlier Colorado Sun story. At the time, 5,155 employers were one of the 20 private plans approved by the state. That was about 2.4% of all employers.

Fixing glitch before fund’s next checkup

The agency is working with its vendor to make final adjustments by May 7 and Spesshardt said he hopes the fixes will be completed by the end of June, in time for the state’s unemployment trust fund health check, which will determine next year’s rates.

Employers that underpaid because of the error won’t be penalized for the agency’s error. But they do have to pay the difference between the billed premium and what they actually owed. Spesshardt said they can request a payment plan.

Tracy Marshall, division director for the Family and Medical Leave Insurance program, also said her department will work with employers who haven’t paid their share of the FAMLI program, but there will be penalties and interest. 

Employers and workers began paying into the paid-family leave program in 2023, though no one could use it until last year. Employers with 10 or more employees split the cost at a rate of 0.9% of an employee’s paycheck. Employers with nine or fewer employees would be responsible for half the amount, or 0.45% and their workers would not be expected to contribute. At the end of fiscal year 2024, FAMLI had a fund of $1.3 billion and had over 216,000 employers registered.

Other issues the auditors found included the $127.7 million in refunds that weren’t properly recorded after some employers opted out of FAMLI because they had a private plan. That resulted in an overstatement of revenues for the labor agency’s fiscal years 2023 and 2024. The labor department fixed the problems after learning about them. 

Still in the works? Figuring out why more than 4,100 employers have registered for FAMLI but not paid any premiums. 

The auditor’s office also found that the labor department hasn’t analyzed how many employers haven’t even registered for FAMLI and “hasn’t developed a plan on how to identify employers that have not registered but are required to do so,” said Ferminia Hebert, an audit manager for the state auditor’s office.

Marshall said that as of Tuesday, FAMLI has a 78% compliance rate for employers. But, she added, “There’s no one report we can go out to see the exact number of employers that have employees working within the state of Colorado. That’s a much more difficult number for us to get to.”

However, her department is working with the labor department, department of revenue and the Secretary of State’s Office to figure that out. 

Labor department officials said they agreed with all of the auditor’s findings and in various stages of making sure fixes are implemented.