Unemployment claims are a normal part of doing business; they help support employees during times of job loss. But in recent years, many employers have been facing a different challenge: fraudulent unemployment claims. These are claims made by individuals who were never your employees, or by employees who are misrepresenting their circumstances to collect benefits they aren’t entitled to.
The problem?
Fraudulent claims aren’t just an administrative headache; they can directly increase your unemployment tax rate, costing your business thousands of dollars each year. The good news is that with the right strategies, you can detect and stop these claims before they drain your resources.
In this blog, we’ll walk you through the warning signs, prevention tips, and actionable steps to keep your unemployment costs under control.
Why Fraudulent Unemployment Claims Are on the Rise
Over the past few years, fraud has surged due to increased online filing systems, identity theft, and remote work, which makes verification harder. In some cases, criminals file claims using stolen identities. In others, employees misrepresent why they left a job to qualify for benefits.
For employers, the stakes are high. Even one fraudulent claim that goes unnoticed can:
- Inflate your unemployment insurance tax rate.
- Damage your company’s reputation with the state.
- Drain valuable time and resources from your HR team.
This is why proactive detection and prevention aren’t optional; they’re essential.
How to Spot Fraudulent Unemployment Claims
Recognizing a suspicious claim early is your best defense. Here are some red flags to watch for:
1. Unfamiliar Names or Records
If you receive a claim notice for someone who was never on your payroll, it’s a clear sign of fraud. Cross-check the name, Social Security number, and employment dates against your records.
2. Current Employees Filing Claims
If an employee is still actively working but files a claim stating they were laid off or terminated, this is a red flag.
3. Incorrect Dates of Employment
Fraudulent claims often have mismatched hire and termination dates. A quick review of your HR system can confirm the facts.
4. Multiple Claims from the Same Address
When several claims list the same home address, but the individuals aren’t connected to your company, it could be part of a larger fraud scheme.
5. State Inquiries You Weren’t Expecting
If the state contacts you about wage details for an employee you don’t recall, investigate immediately.
Steps to Stop Fraudulent Claims in Their Tracks
Spotting suspicious activity is only half the battle, stopping it fast is where the savings happen.
1. Respond Promptly to All Claim Notices
Every unemployment claim has a deadline for an employer response. Missing it means you lose the chance to contest the claim, even if it’s fraudulent. Set up a process to review and reply to claims within 24–48 hours.
2. Maintain Accurate Employment Records
Up-to-date personnel files, payroll records, and timekeeping logs make it easier to verify or dispute claims quickly.
3. Educate Your HR and Payroll Teams
Train your staff to recognize fraud indicators and route suspicious claims to management immediately.
4. Notify the State Unemployment Office Quickly
If you suspect fraud, contact your state unemployment agency right away with supporting documentation. Many states have dedicated fraud hotlines or online reporting portals.
5. Work with an Unemployment Cost Control Partner
Specialized firms can monitor claims, track deadlines, and appeal questionable cases on your behalf, reducing both your workload and your costs.
Preventing Fraud Before It Happens
While quick detection is important, prevention saves the most money and stress. Here’s how you can make your business harder to target:
- Secure Employee Data – Use encryption and limit access to sensitive personal information.
- Exit Interviews and Documentation – Always document reasons for separation in detail; it helps when contesting false claims.
- Payroll Audits – Conduct regular audits to ensure your records match actual employee status.
- Employee Communication – Let current staff know to report any unemployment paperwork they receive if they haven’t left the company.
Why Acting Quickly Saves You Money
The unemployment insurance system calculates your tax rate based on the number and cost of claims charged to your account. If fraudulent claims slip through, they artificially inflate your history of payouts, which means:
- Your tax rate increases, sometimes for multiple years.
- You pay more per employee in unemployment insurance.
Even stopping one fraudulent claim can lead to significant savings over time.
Protect Your Bottom Line with Proactive Measures
Fraudulent unemployment claims aren’t just a government problem; they’re a business problem. By staying vigilant, maintaining accurate records, and responding quickly, you can protect your company’s finances and reputation.
If you’re feeling overwhelmed by the process or unsure whether your current strategy is enough, partnering with experts in unemployment cost control can make all the difference. They can monitor claims for you, handle appeals, and ensure you only pay for legitimate cases.
Final Takeaway:
Fraudulent unemployment claims can sneak up on even the most organized business. The key is to spot them early, stop them fast, and prevent them altogether with a proactive, well-documented approach.
Need help protecting your business from costly claims?
Let our specialists review your unemployment and disability accounts at no cost, and see how much you could save.
Contact us today and keep fraud from eating into your bottom line.
