The Senate gave final congressional approval Thursday night to a bill that would require states to close loopholes in their unemployment insurance laws that have allowed unscrupulous employers to dodge millions of dollars in premiums.
The loopholes have allowed employers who lay off many workers to avoid the higher premiums that usually result, and they have cost state and federal unemployment insurance funds millions, possibly billions, of dollars, according to the Government Accountability Office and state officials. Other employers have been forced to pay higher premiums to offset these losses.
Carl T. Camden, president of Kelly Services Inc., the big temporary employee firm -- and one that faces higher premiums -- has been campaigning for tighter laws. He called the quick congressional action very gratifying.
Unemployment insurance premiums are based on experience, that is, whether a company has a history of layoffs, which cause workers to become eligible for benefits. The more layoffs a company has had, the higher its premiums.
But new companies are often given a clean slate, offering sharp operators an opening.
In a typical version of the strategy, a company that has had lots of layoffs forms a new subsidiary, which in many states is entitled to a low "new company" rating, and shifts most of its workers to it. State unemployment taxes are levied on a per-worker basis, so the shift results in big savings for the company, in many cases millions of dollars.
A GAO study last year found that laws in more than half the states do not clearly forbid such a shift.
The bill, passed by the House on July 14, requires states to close this loophole, and to develop methods for detecting violations. It imposes penalties on companies that engage in the practice and on promoters of the strategy.
Camden acknowledged yesterday that it may take states some time to comply, but in the meantime "it chills future action" by companies that might have been considering the move.
Companies will "know the legal heat has been turned up," he said. "At least you could claim prior to this point [that the law] was ambiguous. It's not ambiguous now."
Backers say they expect President Bush to sign the bill.