If you’re a Washington state employer, you’ve probably noticed something this year: collection letters from Employment Security assessing small- to medium-sized penalties for incomplete forms and reports.
Many businesses probably just pay the fine. Life is too short to call and ask about a $75 or $150 penalty. Plus, you might fairly assume that the state correctly assesses the penalties.
Unfortunately, you would be wrong.
The Problem is a Buggy Computer System
Here’s the issue: It turns out that Employment Security Department’s “Next Generation Tax System”, also known as NGTS, launched earlier this year with a number of bugs. And these bugs trigger penalties on employers.
For example, NGTS considers any empty field on an unemployment tax return to be an error… which sounds okay except the standard paper form provides six spots for six employees. So you have to fill in all six spots if you file your return using paper. You can’t avoid the penalty if, oh, say you have only one or two employees.
And it gets worse. Another bug in both the paper and electronic filing systems removes the leading digit in any employee’s Social Security Number if the number begins with a 6, 7, 8 or 9… and then because that Social Security Number is now “missing” a digit, NGTS assesses that employer an “incomplete” report penalty.
September 29 Agency Report to Legislature
The Employment Security Department agency issued a report to the legislative on Sept 29, 2014 reporting on this mess (Click here for a copy) and listing other bugs too: Paper returns get lost, discrepancies in rounding occur, wage reports for employees filing for benefits get rejected, and so on.
Fortunately, the report says many of these problems have been fixed or have been partially fixed. And the report also indicates that most of remaining bugs should be resolved before the end of the year.
But oh my gosh, is this any way to run a government agency?
Assessing Damage to Employers
The agency report does not disclose how many employers (out of the roughly 200,000 employers in the state) have been incorrectly penalized by NGTS. (I tried to get this number from the agency and was unsuccessful.)
But back of the envelope calculations suggest to me that tens of thousands of employers (probably mostly small businesses) have been hit.
How many small businesses filing paper returns have some number of employees other than 6, for example?
How many employers have at least one employee on the payroll with a tax identification number that begins with a 6, 7, 8 or 9?
Is it possible the agency has been assessing several million dollars a quarter of bogus penalties? For example, has the agency assessed 20,000 employers (ten percent of the total) a $150 penalty? That would amount to $3,000,000 in potentially bogus penalties in a single quarter.
That’s enough background information and probably too much speculation. This is a how-to blog. So let me describe two concrete actions that small businesses probably want to take.
What to Do When You Get Penalized
If you get penalized, the problem is easy, if time-consuming, to fix.
You need to call the Employment Security Department and ask to have your account reviewed. Here’s the phone number: 360-902-9477. Note that you will need your ESD account number or your UBI number.
At this point, it’s very possible your account has been incorrectly assessed penalties twice.
By the way, note that if you happen to have made a real error—say you leave a field blank—you won’t be forgiven. ESD sticks you with a $150 penalty. Even if you’ve had to call them in the past to get their errors corrected.
One Other Action I Encourage You to Take
Okay, I know you’ve got a million things to do. And after having to first make a telephone call to Employment Security Department to ask them to undo the effects of their error, the last thing you probably want to do is make another telephone call.
Nevertheless, I would urge small business owners to contact their elected representatives with a friendly plea for awareness and action. (Here’s link you can use to find the right telephone number. Note that all you need to do is call and leave a message.)
I think you and I want to ask them to look into the problem. And I think you and I want to ask them to in future more thoughtfully write and rewrite the statutes that lead to these sorts of mix-ups.
Thank you for your blog post about our new computer system. We have similarly communicated about this new system through billing inserts and email blasts to employers and briefings with legislators.
Earlier this year, Employment Security replaced our old 1970s-era unemployment tax management system because it could no longer adapt to changing employment law; it was inefficient to use and maintain; and it lacked modern security features. The task required converting 200 gigabytes of historical data and writing two million lines of code.
Despite extensive user testing, we experienced some initial bugs that are common in major IT projects. Our primary contractor (Hewlett-Packard) is making steady progress addressing those bugs and has already resolved 80 percent of them. We won’t make final payment to the contractor until the system performs according to specifications.
Although most employers haven’t been affected by bugs, we regret the inconvenience to those who have, and we’re working proactively to resolve their issues. We will know which employers were incorrectly assessed penalties and will adjust their accounts automatically. We’re happy to answer any questions at 855 TAX WAGE or OlympiaAMC@esd.wa.gov.