Employment and Training Administration
Washington, D. C. 20210






October 10, 2000




October 31, 2001











Office of Workforce Security




New Hires Systems Improve Integrity

  1. Purpose. To encourage State Employment Security Agencies' (SESAs) to take full advantage of the "New Hires" system to prevent and detect overpayments attributable to unemployment insurance (UI) claimants who have returned to work but continue to draw benefits.

  2. Reference. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA); Unemployment Insurance Program Letter (UIPL) No. 35-99.

  3. Background. PRWORA, otherwise known as "welfare reform," required the establishment of Directories of New Hires at both the State and National levels. Although the primary purpose of the legislation is for the enforcement of child support, the UI program in each State is positioned to benefit as a result of the process created.

    For each new hire, employers must report, at a minimum, the six data elements required for the W-4 tax form:

    These data are reported to the State agency specifically designated by the State to house the State Directory of New Hires. In some States, the Directory is housed in the SESA. If the Directory is housed in a State agency other than the SESA, PRWORA requires the SESA to have access to it for purposes of administering the UI program.

    PRWORA permits each individual State to require employers to report information in addition to the W-4 data. Many SESAs have increased the effectiveness of their overpayment detection systems by obtaining legislation requiring employers to report the "start work date" for each new hire. Some SESAs that have not been able to obtain such legislation have enhanced their overpayment detection systems with voluntary reporting of the start work date.

    Employers are required to report each new hire within 20 days or, in the case of magnetic or electronic transmissions, twice a month but not less than 12 days nor more than 16 days apart.

    Multistate employers (with employees in two or more States) may comply with the reporting requirements by designating one State to which all New Hires will be reported.

    The State agency responsible for housing the State Directory must enter the New Hires information received from employers within five business days. This information must, in turn, be transmitted within three business days to the National Directory.

    Federal agencies (civilian and military) must report New Hires directly to the National Directory. Additionally, these agencies must report quarterly wage information for all employees to the National Directory. While SESAs currently do not have access to the National Directory, efforts are underway on several fronts to gain access for purposes of administering the UI program.

  4. Comparison to Wage/Benefit Crossmatch Process. Historically, the primary tool used by SESAs to detect overpayments attributable to claimants who have worked while collecting UI benefits has been the wage/benefit crossmatch system. The wage/benefit crossmatch process compares claimants' weekly UI benefit payment records against quarterly wage records reported by employers. When this process identifies claimants with benefits and wages for the same quarter, a universe of potential overpayments is developed. Cases with the highest likelihood of containing benefits paid during weeks worked are selected for investigation. The investigation process involves contacting employers to identify the weeks worked during the quarter reported, so that comparisons can be made to the specific weeks for which benefits were paid.

    The wage/benefit crossmatch process has built-in delays. Quarterly wage reports submitted by employers are generally due in the SESA at the end of the month following the calendar quarter. Complete posting of the wage record data generally takes another two months. Thus, the quarterly wage records are not available for crossmatch purposes until the following quarter, the second quarter after the quarter reported. For example, a crossmatch run in July may detect a potential overpayment from February. By the time a case is assigned to an investigator and the investigation is completed, the claimant may have exhausted benefits, including many subsequent weeks that would also be included in a period of disqualification.

    The New Hires crossmatch process, on the other hand, has the ability to identify potential overpayments much sooner in the claims series. New Hires reporting by employers is continuous throughout the quarter, and because employers are required to report within specified time frames shortly after hiring new employees, the information is available quickly, often relatively soon after overpayments occur and before claimants have drawn many more weeks of benefits. Thus, overpayments can be established and benefits stopped before many weeks have been overpaid.

  5. OIG Recommendations. In 1999, the Office of Inspector General (OIG) issued a report on an audit of benefit payment controls in the UI system. (See UIPL No. 35-99.) The purpose of the audit was to examine the wage/benefit crossmatch system and make recommendations to improve the process. The audit was expanded beyond its original scope to include an examination of the New Hires process. The OIG report concluded that the New Hires process:

  6. Current Status in SESAs. Overpayment Detection/Recovery Activities are reported on the ETA 227. Currently, the report is not designed to capture data on New Hires. A revised ETA 227 Report containing data cells for New Hires is being submitted to the Office of Management and Budget for authorization. Interim procedures have been issued to the SESAs requesting voluntary reporting of New Hires data, but an insufficient number of SESAs have reported to permit a statistical assessment of New Hires activities nationwide.

    However, informal feedback from SESAs suggests that the OIG predictions were well-founded. Some SESAs have indicated that they are utilizing the New Hires system for purposes of detecting overpayments and, compared to the wage/benefit crossmatch, the New Hires system:

    Additionally, several SESAs have reported that they have detected additional issues as a result of the New Hires process, including job refusals and voluntary quits.

  7. Action Required. SESA Administrators are urged to make full use of the potential offered by PRWORA by implementing the New Hires system as the primary tool for the detection of overpayments attributable to benefits paid during periods of employment.

  8. Inquiries. Direct questions to the appropriate Regional Office.