Unemployment benefits, though distributed through the state, are paid by employers, through a tax on the first $15,000 of each employee’s earnings. The tax rate varies by how many workers the employer has laid off in recent years, but this year, it can range between 1.9 percent and 6.8 percent. Brand new businesses with no history will pay 4.2 percent.
The Department of Labor audits employers to make sure they’re paying the appropriate taxes, and according to a recent report on changes in state government under the Malloy administration, the department has moved from a random sample of firms to audits more frequently based on complaints and patterns of non-compliance in various industries.
The department needed to change its strategy because of staff reductions in the audit group, the report said.
In the last year, the audit team uncovered more than $70 million in payroll that had not been reported, a 20 percent improvement from the previous fiscal year. As a result, unemployment insurance tax payments increased by $1 million.
The agency also determined about 6,000 workers were wrongly classified as independent contractors. That was up from about 4,500 the year before. When an employer classifies a worker as an independent contractor, that company doesn’t have to pay the employer share of Social Security taxes or unemployment insurance taxes. People who worked as independent contractors cannot collect unemployment checks when they lose their jobs.