A letter I am drafting currently. If you don't know how unemployment taxes work, see here.
As a business operating in California as well as twelve other states, I have the ability to compare the regulatory and business climate across states. And while I could discuss many issues with the state of California regulatory affairs, I will focus on just one in this letter: administration of the state unemployment insurance program.
All the states have an unemployment insurance program with roughly similar rules. The fund will pay workers some percentage of their past earnings if they are terminated for reasons other than with cause from their last employer and are actively seeking new employment. Employers are typically charged an insurance rate as a percentage of wages that is based on past unemployment claims by ex-employees of that company.
Before I provide my observations on the problems in the California system, let me provide some data that helps indicate that California is indeed unique. Here are our unemployment insurance rates by state (we have roughly the same business profile in each state, though if anything our business is less seasonal in California so one might expect, all things being equal, that our rates in California would be lower than average)
New Mexico: 0.03%
Arizona: 3.30 %
California: 6.2% + 1.1% disability adder
You can see that our rates in California are double that of any other state, and more than 6 times our average. Further, the California rate could actually be higher by our experience, as 6.2% is the cap. By the way, we did a study a while back as to why our Arizona rates were so high. It turned out most of the claims were from people who had recently moved from California, and grew up under the California system.
In interacting with the California state unemployment system for a number of years, our company has observed two issues that raise costs:
- It is virtually impossible to convince unemployment office workers that an employee was fired for cause. It is very clear they see their mission as making everyone eligible, and thus even a guilty plea of outright theft has not been enough to have the state unemployment office agree that a firing was "for cause."
- The state unemployment office does absolutely nothing to ensure that a worker collecting unemployment is actively seeking work, as is required by legislation. We run a seasonal business, and our workers have told me the unemployment office tells them that it is perfectly fine to work 6 months and take the other 6 months off on unemployment. I have had employees vacationing in Mexico for 6 months still collecting unemployment. When I reported this fact to the state unemployment office and said that these workers obviously could not be actively seeking work in California, I was told by the workers comp. customer service staff that if I made such a claim, and did not succeed in proving it, I was subject to fines and even incarceration for making a false charge. Of course, I dropped it.
No matter what the text of the legislation says or what you are told by the managers of the system, the front-line employees who make the decisions that drive costs see it as their job to ensure maximum payout to any individual, regardless of whether they are honestly looking for work or not. I have, just as a test, asked trusted employees to call the unemployment office to ask about benefits. They were told that they didn't really have to be looking for work, that no one would check, and that all they had to do was call in and say they were looking for work and they would get paid. Your unemployment office was practically begging them to take as much money as they could.