UIPL 16-23 (Accessible PDF).pdf

ETA Advisory File Text

EMPLOYMENT AND TRAINING ADMINISTRATION ADVISORY SYSTEM U.S. DEPARTMENT OF LABOR Washington D.C. 20210 CLASSIFICATION Unemployment Insurance CORRESPONDENCE SYMBOL OUI DUIO DATE September 29 2023 RESCISSIONS Appendix E-Field Audit EXPIRATION DATE Continuing ADVISORY UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 16-23 TO STATE WORKFORCE AGENCIES FROM BRENT PARTON s Principal Deputy Assistant Secretary SUBJECT Issuance of Revised Appendix E of the Employment and Training ET Handbook No. 407 1. Purpose. To notif y states that Appendix E of ET Handbook No. 407 4th Edition Tax Perf ormance System TPS regarding state employer Unemployment Insurance UI audit f unctions f ormerly f ield audit f unctions and procedures has been revised. 2. Action Requested. Administrators are requested to distribute this advisory and the attachment to appropriate UI tax managers employer audit staf f and TPS reviewers. There will be two dif f erent ef f ective dates f or the revisions to Appendix E October 1 2023 or January 1 2024 explanations of each ef f ective date are below . 3. Summary and Background. a. Summary This Unemployment Insurance Program Letter UIPL announces a revision to Appendix E of ET Handbook No. 407 4th Edition TPS which concerns state employer UI tax audits of employers. State employer audit tax staf f audit the records of selected employers to ensure that the employers have complied with state UI laws and regulations. Appendix E applies to employer audits of contributory employers1 conducted by state auditors. The revised Appendix E Employer Audits can be f ound here https www.dol.gov sites dolgov files ETA handbooks 2023 Handbook 407 ETA Appendix-E Employer Tax Audits Accessible PDF .pdf. Appendix E was last updated in 1999. The U.S. Department of Labor Department Employment and Training Administration ETA has revised Appendix E because states have asked f or clarif ication of prior guidance and changes since 1999 in the audit program such as implementation of the Ef f ective Audit Measure EAM and the ability f or states to conduct audits remotely. The revised Appendix E replaces Appendix E in 1 Contributory employers pay contributions into a state unemployment f und based on contribution ra tes the state had a ssigned to ea ch em ployer. 2 ET Handbook 407 4 th Edition TPS and discontinues the Employment Security Manual ESM Part V Section 3670 -3693 .2 b. Background State employer audits are required under the Federal UI Perf orms Management System which the Department developed to meet its responsibilities under Title 20 C.F.R. Part 602. This regulation requires the Department to assess the timeliness and accuracy o f administration of state UI programs. In accordance with UIPL No. 03 - 11 state audit activity is a core measure in the UI Perf orms Management System. A comprehensive employer audit program is vital to the administration of a state UI system. A well -pla nned and cost -effective employer audit program executed with other state UI administrative f unctions is an ef ficient means of ensuring compliance with state UI law and timely collection of taxes on an equitable basis. Completed audits that meet the guid elines set f orth in Appendix E are reported on the ETA 581 Contribution Operations report and they are included in the universe of employer audits that may be subject to review by TPS acceptance sampling. 4. Guidance . a. Summary of Major Revisions. A summary of major revisions to Appendix E of ET Handbook 407 TPS is below. The revised Appendix E Employer Audits can be f ound here https www.dol.gov sites dolgov f iles ETA handbooks 2023 Handbook 407 ETA Appendix -E Employer Tax Audits Accessible PDF .pdf . i. Changes Field Audits to Employer Audits to align more closely with current employer audit practices which may include both in-person f ield audits and remote audits. ii. Revises the def inition of what constitutes a completed employer audit. Prior guidance listed seven minimum req uirements f or a completed audit. These seven requirements rem ain unchanged . Two requirements have been single d out to f urther clarif y these already -existing requi rements. A. The revised def inition requires that an audited employer paid wages in covered employment i n at least one audited quarter in accordance with prior guidance that an auditor verif ies the taxable amounts of payments made by an employer to employees and contributions paid f or covered employment. If an auditor investigate d an employer and f ound that the employer did not pay wages to employees in covered employment during the scope of the audit this activity is not considered an employer audit . For exam ple an audit did not occur if the auditor f ound that the employer reported all wages to the state as covered employment erroneously. B. The revised def inition of a completed audit includes that an auditor verif ied the existence of a business. This addition is consistent with p rior 2 ESM Pa rt V Section 3670 -3693 a ddressed sta te em ployer UI ta x a udit f unctions a nd procedures a nd wa s included in Appendix E of ET Ha ndbook No. 407 4 th Edition. 3 guidance that an auditor must includ e inf ormation that the existence of a business was verif ied in the audit report . iii. Includes a detailed description of an auditor s tests to verif y the accuracy and completeness of an e mployer s payroll posting system and reported total and taxable wages. These tests remain unchanged f rom prior guidance as described in Chapter 7 of ET Handbook No. 407 . The tests must be completed as a requirement f or an audit to be counted as a completed audit. Since Appendix E is the primary source of guidance on state audit programs a description of the tests ha s been added to Appendix E f or the convenience of Federa l and state staf f . iv. Provides a new def inition f or calendar quarters audited . The term is def ined in revised Appendix E since states report the number of calendar quarters audited on the ETA 581 report and the term is not clearly def ined in current guidance. The new def inition will provide consistency f or reporting data on the ETA 581 report. v. Provides update s f or employer selection criteria f or audits and includes two policy changes . These changes provide more flexibility f or states to select employers for audit with the goal to pass all f actors of the EAM rather than meet specif ic measures. For inf ormation on the EAM see Section 17 in this revised Appendix and UIPL s No. 30 -10 and 03 -11. A. Prior guidance that at least 10 of audit assignments must be randomly selected f rom the total universe of contributory employers has been changed f rom a requirement to a recommendation . B. The requirement that at least 1 of total audits required to meet the audit DLA now f actor 1 of the Ef fective Audit Measure EAM must be large employers has been removed . vi. Revises the def initions f or what constitutes the scope of employer audits. Prio r guidance stated that the scope of an audit is the number of quarters examined without def ining examined. To clarif y what is meant by examined the revised Appendix established new terms original quarters normally f our and extended quarters bec ause each term deserves separate guidance. For example the revised Appendix E reaf f irms the dif f erence between auditing original quarters and extended quarters. Whereas an auditor is required to verif y the accuracy of the employer s payroll posting s ystem f or the original quarters the auditor may omit verif ying the accuracy of the employer s payroll posting system during the period the audit is extended to cover. However the auditor must still verif y the employer s total and taxable wages that were reported to the state f or the extended quarters. In addition the revised Appendix reaf f irms that the auditor must search f or unreported employees in all quarters that the audit was extended to cover. 4 vii. Eliminates the current provision that within the context of an audit report auditors should collect additional taxes at the time of the audit and the mention in the audit report if taxes due were collected or explain why taxes were not collected. The revised Appendix recommends an auditor s manager or designated staf f to review each audit report to ensure that the report summarizes adjustments to an employer s total wages taxable wages and or contributions due that may be required because of the auditor s f inal determination. A manager should check that adjustments were processed in the state s automated system. The state should f ollow its normal procedures to bill and collect amounts du e. viii. Recommends that states establish timeliness standards f or the completion of audits and audit reports. Since many audits result in adjustments that either bill employers f or additional taxes due or provide credits f or overpaid taxes it is important to complete audits and prepare audit reports as soon as possi ble. For example a state may establish a policy that an audit should be completed within 90 calendar days f rom the start of the audit i.e. when the auditor has a pre -audit discussion with the employer and an audit report should be completed within 30 days af ter the closeout conf erence. Note Each state has the f lexibility to establish its own policy f or timely completion of audits and audit reports in accordance with its UI law and or regulations. ix. Addresses the use of remote audits or e -audits which are audits conducted remotely versus in -person. x. Adds inf ormation on the EAM to the guidance. The prior version of the Appendix did not include inf ormation about the EAM since the EAM was established af ter the most recent update to the Appendix. The new inf ormation about the EAM in the revised Appendix is only a summary and a cross ref erence to inf ormation on the EAM as provided in UIPL s No. 30 -10 and 03 -11. xi. Clarif ies when state s should report audit activity on the ETA 581 Contributions Operations Report and wh en to include the audits in TPS acceptance sampling i f the audits involve other states . Prior guidance did not address three specif ic situations described below. A. If while conducting an audit an auditor f inds worke rs and wages covered in another state the auditor documents the correct payroll f or the auditor s state. The audit and other adjustments to the wages reported to the auditor s state are counted in the state s ETA 581 Contribution Operations report and in cluded in the state s TPS universe of employer audits. Inf ormation regarding wages covered in another state is shared with the other state based on the auditing state s procedures on initiating out -of - state contact. 5 B. A state that receive s data and inf ormation f rom an audit that another state completed on its behalf is not counted in the state s ETA 581 Contribut ion Operations Report and is not included in the state s TPS acceptance sampling universe of employer audits. C. A j oint audit where auditors f rom more than one state perf orm an audit together are counted in a state s ETA 581 Contribution Operations report and included in a state s TPS universe of employer audits if employees and wages are covered in the state. xii. Reminds states that tax auditors must be merit -staf f ed governmental employees and not contractors if the auditors have the responsibility f or making determinations of monetary liability or coverage decisions based on their f indings . The basic U I audit f unction as well as certain progra m audit f unctions may be outsourced to the extent they do not involve the exercise of discretion in applying governmental authority but rather involve only the investigation and verif ication of past actions taken by governmental or contract employees. The outsourcing of employer audit activities to contractors is limited to investigations that only gather data and f acts that will be transmitted to a merit -staf f ed employee who will make any determination after reviewing the inf ormation. See UIPL No. 12 -01 Change 2 f or more inf ormation. 3 xiii. Encourages states to participate in the Questionable Employment Tax Program QETP with the IRS. See UIPL No. 17 -07 and Training and Employment Notice No. 03 -21 f or more inf ormation b. Effective Dates. ET Handbook No. 407 provides two dif f erent timef rames f or conducting employer audit TPS reviews. State TPS reviewers conduct acceptance sampling of completed employer audits to determine if the audits were completed in accordance with the Handbook . The ef fective date of the revision announced in this UIPL will dif f er depending on the timef rame used f or TPS audit reviews. The Handbook allows state TPS reviewers to conduct acceptance sampling of audits completed in the f ourth quarter of the previous calendar year and the f irst second and third quarters of the current calendar year. Under this f irst option a state reviewer can begin to revi ew cases in October of the current calendar year. This option of beginning the review in October instead of January may lessen the workload burden of reviewing acceptance sampling f or other tax f unctions and the audit f unction at the same time in January. The Handbook provides a second option whereby a state reviewer would conduct acceptance sampling of audits completed in the f our quarters of the calendar year 3 Unem ployment I nsurance Program Letter No 12 -01 Change 2 Sta tes Ability to Exercise Flexibility in Sta f f ing Models f or the Perf orm a nce of Certa in Unem ploym ent Com pensa tion UC Adm inistra tive Activ ities I ssued Ja nua ry 8 2021 6 under review. Under this option a state reviewer begins to review sample cases in January of th e next year. The revision to Appendix E is ef f ective October 1 2023 f or states choosing to conduct TPS employer audit reviews that examine audits completed in the f ourth quarter of the previous calendar year and the f irst second and third quarters of the calendar year under review i.e. f or calendar year 2024 this would be the f ourth quarter of 2023 and f irst three quarters of 2024 . The revision to Appendix E is ef f ective January 1 2024 f or states choosing to conduct TPS employer audit reviews t hat examine audits completed in the f our quarters of the calendar year under review i.e . f or calendar year 2024 all f our quarters of 2024 . 5. Inquiries . Please contact your ETA Regional Of f ice f or inquiries . 6. References . Title 20 C.F.R. Part 602 https www.ecf r.gov current title -20 chapter -V part -602 UIPL No. 03 -11 Implementation of the Effective Audit Measure issued December 30 2010 https www.dol.gov agencies eta advisories unemployment -insurance -program - letter -no -03 -11 UIPL No. 30 -10 Proposed Effective Audit Measure for State Unemployment Insurance UI Employer Audit Programs issued September 2 2010 https www.dol.gov agencies eta advisories unemployment -insurance -program -letter -no - 30 -10 UIPL No. 13 -10 Tax Performance System Handbook Updates issued February 16 2010 https www.dol.gov agencies eta advisories unemployment -insurance -program -letter -no - 13 -10 UIPL No. 29 -10 Tax Performance System Handbook Updates ET HANDBOOK NO. 407 4th EDITION CHANGE 5 issued August 4 2010 https www.dol.gov agencies eta advisories unemployment -insurance -program -letter -no - 29 -10 UIPL 17 -07 Initiative to Address Questionable Employment Tax Practices issued April 10 2007 https www.dol.gov agencies eta advisories unemployment -insurance - program -letter -no -17 -07 UIPL No . 12 -01 Outsourcing of Unemployment Compensation Administrative Functions issued December 28 2000 https www.dol.gov agencies eta advisories unemployment - insurance -program -letter -no -12 -01 UIPL No . 12 -01 Change 1 Outsourcing of Unemployment Compensation Administrative Function s Claims Taking issued November 26 2007 https www.dol.gov age ncies eta advisories unemployment -insurance -program -letter -no - 12 -01 -change -1 UIPL No. 12 -01 Change 2 States Ability to Exercise Flexibility in Staffing Models for the Performance of Certain Unemployment Compensation UC Administrative Activities issued January 28 2021 7 https www.dol.gov agencies eta advisories unemployment -insurance -program -letter -no - 12 -01 -change -2 ET Handbook No. 407 4 th Edition Issued November 20 2003 https www.dol.gov sites dolgov files ETA handbooks 2010 ETA Handbook407c4.pdf ET Handbook No. 407 4 th Edition Tax Performan ce System Handbook Updates issued December 9 2004 https oui.doleta.gov dmstree handbooks 407 hb 407 4thc1.htm ET Handbook No. 407 4 th Edition Change 2 issued July 31 2006 https www.dol.gov agencies eta advisories handbooks et -handbook -no -407 -4th -edition - change -2 ET Handbook No. 407 4 th Edition Change 3 issued December 11 2007 https www.dol.gov agencies eta advisories handbooks et-handbook -no -407 -4th -edition - change -3 TEN No. 03 -21 Questionable Employment Tax Practices QETP Program issued August 20 2021 https www.dol.gov sites dolgov f iles ETA advisories TEN 2021 TEN 03 -21.pdf and 7. Attachment . None.