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Effective audit measure for state unemployment employer audits
Summary ETA introduced a state unemployment insurance employer audit measure covering audit coverage, wage changes, total wages audited and worker misclassifications found per audit. It explained state performance standards and responses to comments, with details in two attachments. ETA lists the letter as Active.
Document
Federal guidance
Agency
U.S. Department of Labor, Employment and Training Administration (ETA)
Document number
UIPL No. 03-11
Date issued
December 30, 2010
Status
Active
ETA lists this letter Active as of 2026-10-24, and the PDF prints “Continuing” in its expiration field.
Status last verified October 24, 2026
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About this page: The full text below is the official document from U.S. Department of Labor, Employment and Training Administration (ETA). Ezel adds the plain-English summary and tracks the document's status. The official source linked on this page is authoritative for any reliance.
2010/UIPL03-11ACC.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2010/UIPL03-11ACC.pdf)
CLASSIFICATION
EMPLOYMENT AND TRAINING ADMINISTRATION UI – Audit Measurement
ADVISORY SYSTEM CORRESPONDENCE SYMBOL
U.S. DEPARTMENT OF LABOR
OUI/DUIO
Washington, D.C. 20210 DATE
December 30, 2010
ADVISORY: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 03-11
TO: STATE WORKFORCE AGENCIES
FROM: JANE OATES /s/
Assistant Secretary
SUBJECT: Implementation of the Effective Audit Measure
1. Purpose. To advise states of a new Core Measure in the Unemployment Insurance (UI)
Performs performance management system to evaluate state UI employer audit programs and
include elements of worker misclassification detection and enforcement.
2. References.
Employment and Training (ET) Handbook No. 401, 4th Edition, Unemployment
Insurance Reports Handbook and Subsequent Changes
ET Handbook No. 407, 4th Edition, Tax Performance System
ET Handbook No. 336, 18th Edition, UI State Quality Service Plan (SQSP) Planning and
Reporting Guidelines
Unemployment Insurance Program Letter (UIPL) No. 14-05, Changes to UI Performs
UIPL No. 23-10, Additional Planning Guidance for the Fiscal Year (FY) 2011
Unemployment Insurance (UI) State Quality Service Plan (SQSP)
UIPL No. 30-10, Proposed Effective Audit Measure for State Unemployment Insurance
(UI) Employer Audit Programs
3. Background. The UI employer audit program has historically been measured by the number
of audits completed annually. This measure served the program well in the past; however, there
have been increasing numbers of employers that have been found to circumvent employment
taxes by misclassifying workers. The current audit measure does not indicate whether states are
effectively detecting employers that misclassify their employees. The U.S. Department of
Labor’s (USDOL) Employment and Training Administration (ETA) formed a team of Federal
and state UI tax experts to determine whether a more effective audit measure could be developed
that would capture state efforts to detect worker misclassification. UIPL No. 30-10, which was
issued on September 2, 2010, informed states that the federal-state team recommended certain
changes regarding how the UI employer audit program is evaluated. States were asked to
provide comments on the proposed measure. The comment period expired on September 30,
2010, and twenty-seven states and the Strategic Services on Unemployment and Workers’
Compensation (UWC) provided comments (see highlights below).
RESCISSIONS EXPIRATION DATE
None Continuing
4. Highlights of Comments. Most comments were generally favorable to the proposed new
measure. The areas that generated the most comments are discussed briefly below along with
USDOL’s responses. See Attachment A for specific comments and USDOL’s responses. All
comments were considered in making the final changes to UI Performs.
General Comments – Of the twenty-seven states that provided comments on the proposed
audit measure, fifteen states strongly supported the measure, ten states supported the
measure with accompanying questions, and two states opposed the proposed measure.
Factor Performance Levels – Six states commented on the performance levels for the
individual factors and the overall summary score. Two states commented that the
minimum performance levels were too low and four states commented that they were too
high.
USDOL response – The Acceptable Levels of Performance (ALP) for each of the factors
were established after examining six years of historical state data and consultation with
the federal-state team. The ALP for each factor was set well below both the average and
mean national scores. USDOL agrees that not every state will want to emphasize the
same areas of audit performance; therefore, two points for self-directed emphasis are
included in the Effective Audit Measure to allow states the flexibility to emphasize the
factor, or factors, that matter most in their state.
Effective Dates – Several states commented on the implementation dates of the Effective
Audit Measure. They suggested that USDOL delay the implementation date for the new
measure and/or consider a re-evaluation of the new measure after a certain period of time.
USDOL response – Some states will need time to enact changes to their audit program to
accomplish the minimum performance levels required under the Effective Audit Measure.
States that fail the new measure will not be required to write a Corrective Action Plan
(CAP) until the FY 2015 SQSP. The FY 2015 SQSP will use calendar year 2013
Effective Audit Measure results. Additionally, UIPL No. 30-10 states that the effective
Audit Measure will be re-evaluated three years after implementation to determine whether
the new measure was effective in promoting the detection of worker misclassification.
Audit Definitions – Several states commented on the definitions of what constitutes a
reportable audit on the ETA 581 Contributions Operations report. Some states asked that
the definition of a valid audit be broadened under the Tax Performance System (TPS),
while other states recommended that the TPS definitions and standards for a valid audit
remain unchanged.
USDOL response – The definition of a valid audit will remain unchanged but will be
evaluated as part of the overall assessment of the new Effective Audit Measure.
5. Revised UI Performs Measures and Criteria. The Effective Audit Measure will be a UI
Performs Core Measure. The new measure will be comprised of four factors: 1) Percent of
Contributory Employers Audited Annually, 2) Percent of Total Wage Change From Audit, 3)
Percent of Total Wages Audited, and 4) Average Number of Misclassifications Detected Per
Audit. Each of the four factors has a minimum standard score that states must attain to pass the
Effective Audit Measure as well as an overall combined score that must be met. The measure
also requires states to direct additional emphasis to the factor(s) that they deem important to their
state. An additional two points must be earned among any of the four factors to attain the overall
passing score of at least 7.0. The factor scores are measured to the tenth percentage place or
decimal place, as appropriate. See attachment B for additional information.
Table A provides the framework for the Effective Audit Measure. States must attain at least the
minimum score for all four factors (column A), and two or more points above the combined
minimum score of 5.0 (column B) to pass the measure (column C).
Table A
Effective Audit Measure Summary Score
Effective Audit Measurement A + B = C
Minimum State Total
Factor Description Score Directe Score
d
1 Percent of contributory employers audited 1.0 X 1+X
2 Percent of wages changed as a result of the audit 2.0 X 2+X
3 Percent of the state’s total wages that were audited 1.0 X 1+X
4 Average number misclassified workers discovered per audit 1.0 X 1+X
Total 5.0 2.0 7 .0
Table B provides four examples of state performance for the Effective Audit Measure. The first
example demonstrates that the state’s combined score for all four factors must be equal to or
greater than 7.0. The second example shows that the state must attain at least the minimum
passing value for all four factors, even when the total combined score exceeds 7.0. The third and
fourth examples demonstrate states that passed the measure, showing different degrees of
emphasis for the various factors.
Table B
Four Examples – Effective Audit Measure Results
Factors #s Achieved
(Minimum Scores) Total Minimum
Example Pass/Fail Reason
(Min = 7.0) for all 4
1 2 3 4
(1.0) (2.0) (1.0) (1.0)
Factors?
State 1 State failed to attain a
1.0 2.2 1.1 1.4 5.7 Y Fail
Scores minimum total score of 7.0
State 2 State failed to pass all four
2.0 2.1 0.9 8.6 13.6 N Fail
Scores factor minimum scores
State passed each factor
State 3 minimum score and
1.3 2.0 1.4 2.3 7.0 Y Pass
Scores attained the minimum
overall score of 7.0
State passed each factor
State 4 minimum score and
2.0 3.3 1.0 3.0 9.3 Y Pass
Scores exceeded the minimum
overall score of 7.0
6. Administering the Effective Audit Measure in UI Performs. The SQSP, which each state
negotiates annually with USDOL, will continue to be central to the administration of UI
Performs and includes CAPs (see item Number 8 below).
States will be expected to submit CAPs as a part of the SQSP when their annual
performance on the Effective Audit Measure does not meet the ALP. States will be asked
to provide quarterly updates for each CAP. USDOL will strive to attain uniform
administration of CAP requirements among the states and regions.
7. Publishing Data. The results of the Effective Audit Measure will be published each year with
state-specific data.
8. Effective Dates for Implementing Changes. USDOL will implement the Effective Audit
Measure with the FY 2015 SQSP, which states will prepare using data from the calendar year
ending December 31, 2013.
Table C
Implementation Schedule for the Effective Audit Measure
Calendar Year Measure Calculated SQSP Prepared SQSP Program SQSP
Data Year (PY) Action
2010 Spring 2011 Summer 2011 PY 2012 None
2011 Spring 2012 Summer 2012 PY 2013 None
2012 Spring 2013 Summer 2013 PY 2014 None
2013 Spring 2014 Summer 2014 PY 2015 CAP
9. Action Requested. State Administrators are requested to distribute this document to
appropriate staff.
10. Inquiries. Direct any inquiries to the appropriate Regional Office.
11. Attachments.
Attachment A: Comments on UIPL 30-10: Proposed Effective Audit Measure for State
Unemployment Insurance (UI) Employer Audit Programs
Attachment B: New Core Measure - Effective Audit Measure
2010/UIPL03-11A1.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2010/UIPL03-11A1.pdf)
Attachment A – Comments on UIPL 30-10
Issue Comment USDOL Response
A total of 27 states provided comments
regarding the proposed audit measure: 15
New Proposed
states strongly supported the measure; 10 Answers to the respondent questions are provided below.
Measure
states offered support with questions; and 2
states opposed the proposed measure.
The Effective Audit Measure was structured to accommodate states
Factor 1 that want to retain the existing audit measure. The overall score of
Too Low – Three states commented that the
7.0 includes two points for states to emphasize the factor(s)
factor’s minimum was too low. Two states
% of Contributory important to their state. Consequently, if these three states direct
wanted to retain the existing 2.0% measure;
Employers additional effort to the number of audits performed, the audit
one state wanted to lower the rate to 1.5%.
Audited Annually percentage above 1.0% would earn credit toward the two points
needed for state-directed emphasis.
Factor 1
Under the new Effective Audit Measure, the number of audits was
Too High – One state commented that the reduced by 50%. A further reduction to this factor would adversely
% of Contributory
factor’s minimum was still too high. impact the state’s ability to detect and deter employer reporting and
Employers
classification errors.
Audited Annually
Factor 2
Under the new Effective Audit Measure, the % of Total Wages
% of Total Wages Too High - One state commented that the Changed as a Result of Audit was established at 2.0%. A further
Changed as a factor’s minimum was too high. reduction to this factor would adversely impact the state’s ability to
Result of Audit detect and deter employer reporting and classification errors.
Factor 3 Under the new Effective Audit Measure, the % of Total Wages
Too High - One state commented that the Audited was established at 1.0%. A further reduction to this factor
% of Total Wages factor’s minimum was too high. would adversely impact the state’s ability to detect and deter
Audited employer reporting and classification errors.
The Effective Audit Measure was structured to accommodate states
that want to retain the existing audit measure. The overall score of
Factor 3
7.0 includes two points for states to emphasize the factor(s)
Too Low - One state commented that the
important to their state. Consequently, if this state directed
% of Total Wages factor’s minimum was too low.
additional effort to the larger employer audits, the total wages
Audited
audited percentage above 1.0% would earn credit toward the two
points needed for state-directed emphasis.
-1-
Attachment A – Comments on UIPL 30-10
Issue Comment USDOL Response
Under the new Effective Audit Measure, the Average Number of
Misclassifications per Audit was established at 1.0. While it is true
Factor 4
that only 23 states met the factor’s minimum score in 2009, this
occurred when the factor was not a formal measure and states were
Average Number Too High - Three states commented that the
not emphasizing their misclassification efforts. States that have
of factor’s minimum was too high.
implemented a targeted audit selection process have demonstrated
Misclassifications
that misclassification detection numbers increased significantly,
per Audit
and USDOL believes that this will occur in states that implement a
targeted audit selection process.
The Effective Audit Measure uses minimally acceptable levels for
Too High – One state commented that the
Summary Score each of the four factors, along with two additional points that
summary score was too high.
states earn in any of the four factors.
UIPL 30-10 included the following text regarding
misclassification: “Employees discovered through audits that were
Five states had questions regarding
previously misclassified by the employer. This would include
Misclassified Misclassified workers. Does the new
counting all employees that were discovered through audit;
Workers measure only include independent
including those reported by the employer on Internal Revenue
contractors?
Service form 1099, as well as workers that were unreported (off
the books).”
Generally, these workers are paid in cash by employers who
Misclassified Two states requested a definition of the
would not record their payment for wages or services in
Workers term “off-the-books”.
accounting books and would not report their wages for UI.
One state asked whether they should revise
Misclassified No, the new definition for item 52 on the ETA 581 report will
their ETA 581 reports retroactively for item
Workers occur for the report period ending March 31, 2011.
52 to reflect the new definition.
Frequency of One state asked whether the factors and the The Effective Audit Measure will be published quarterly to
Measure overall measure would be quarterly or provide current indicators for state and federal staff. Similar to the
annual measures. existing measures in UI Performs, however, state performance will
be determined annually, on a calendar year basis.
-2-
Attachment A – Comments on UIPL 30-10
Issue Comment USDOL Response
UIPL 30-10 included the following text regarding implementation:
“The proposed Effective Audit Measure will become part of the UI
Performs Core Measures for the 2013 calendar year evaluation period,
Four states commented on the effective date
which would require a state that fails the measure to write a CAP for
of the new measure. One state asked to
the SQSP submitted during the summer of 2014.” Additionally, UIPL
Effective Date of have the measure sunset after two or three
30-10 stated that “USDOL will evaluate the employer audit summary
Measure years, one asked to have the measure sunset
data on the ETA 581 Contributions Operations report three years after
after 2012, and one state asked to delay the
the initial implementation date to determine whether the proposed
measure until 2015.
employer audit measure was effective in promoting the detection of
worker misclassification and determine whether it will remain a core
measure as proposed.”
The existing guidance regarding audit selection in the Employment
Security (ES) Manual states: “To ensure that all employers are included
Two states asked whether random audits
Audits in the audit selection process, States are encouraged to randomly select
would still be required.
10% or more audit assignments from the total universe of contributory
employers.”
Handbook 401 provides the following language regarding audits that
may be counted for ETA 581 reporting purposes:
a. Include an opening interview,
b. Cover a minimum of four calendar quarters (except as specified in ES
Manual, Part V, Section 3675),
c. Verify the business entity as a sole proprietor, partnership,
Two states asked whether the TPS corporation, joint venture, or other,
definition for an acceptable audit could be d. Document records examined and evidence obtained in tests used to
Audits
changed so that investigations could be verify payroll procedure, accuracy and completeness,
included in the audit data. e. Document records available and examined and the evidence obtained
in the search for misclassified workers and payments,
f. Conclude with a close-out conference with the employer or designated
representative or include an explanation if not conducted; and
g. Include a written report stating the auditor's final determination and
all facts contributing to or supporting that final determination
These criteria remain unchanged.
-3-
Attachment A – Comments on UIPL 30-10
Issue Comment USDOL Response
The fourth factor is the average number of misclassifications per audit.
States are expected to determine proper classification using the
One commenter asked whether states would information discovered during the audit. For employers that comply
be required to find at least one with the law and properly classify their workers, these proposed
Audits
misclassification per audit, and what the measures will help them by leveling the playing field. For employers
impact would be on employers. that misclassify workers, there will be an increased risk that they will be
selected for audit, and that they will be found to have misclassified
workers.
One state commented that the TPS
Audits definition for an acceptable audit should not The definition remains unchanged.
be changed.
The minimum level of achievement for the sum of the four factors is
One state commented that they did not see
5.0. Factor scores are measured to the tenth decimal place. States are
State-Directed any criteria for how this factor would be
required to achieve greater than the minimum achievement levels in one
Emphasis measured to allow for the minimum score of
or more factors, so that the total Effective Audit Measurement score is
2 points
at least 7.0.
-4-
2010/UIPL03-11A2.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2010/UIPL03-11A2.pdf)
Attachment B
New Core Measures – Effective Audit Measure
Effective Audit Measure
Measure: A blended measure of the following four factors: 1) Percent of
Contributory Employers Audited Annually, 2) Percent of Total Wage
Change From Audit, 3) Percent of Total Wages Audited, and 4) the
Average Number of Misclassifications Detected Per Audit. Each of the
four factors, as well as the overall combined score, has a minimum
standard score that states must meet to attain an Effective Audit Measure.
The measure also requires states to direct additional emphasis to the
factor(s) that they deem important to their state. An additional two points
must be earned among any of the four factors to attain the overall passing
score of at least seven.
Data Sources: Quarterly ETA 581 Contributions Operations Report and quarterly ES 202
Report.
1) Factor 1 - Percent of Contributory Employer Audited Annually
a. Computation (to the tenth percentage place XX.X%):
The sum of Item 47 for all four quarters in a calendar year
Item 1 for quarter ending September 30 from the previous year
b. Criterion: Greater than or equal to 1.0%. When the criterion is met, the numeric
value is added to the blended score for the Effective Audit Measure. When the
criterion is not met, the state fails the Effective Audit Measure.
2) Factor 2 - Percent of Total Wage Change From Audit
a. Computation (to the tenth percentage place XX.X%):
The sum of items 56 and 53 for four consecutive report quarters
The sum of item 49 for four consecutive report quarters
b. Criterion: Greater than or equal to 2.0%. If the criterion is met, the numeric value is
added to the blended score for the Effective Audit Measure. If the criterion is not
met, the state fails the Effective Audit Measure.
3) Factor 3 - Percent of Total Wages Audited
a. Computation (to the tenth percentage place XX.X%):
The sum of item 50 for four report quarters
X Item 47 (for 4 Qtrs.) X 4 (Qtrs.)
The sum of item 48 for four report quarters
Total Wages of Contributory Employers for prior four quarters (ES 202)
b. Criterion: Greater than or equal to 1.0%. If the criterion is met, the numeric value is
added to the blended score for the Effective Audit Measure. When the criterion is not
met, the state fails the Effective Audit Measure.
4) Factor 4 - Average Number of Misclassifications Detected Per Audit
a. Computation (to the tenth decimal place XX.X):
The sum of item 52 for four consecutive report quarters
The sum of item 47 for four consecutive report quarters
b. Criterion: Greater than or equal to 1.0. If the criterion is met, the computation’s
numeric value is added to the blended score for the Effective Audit Measure. If
the criterion is not met, the state fails the Effective Audit Measure.
5) Blended Score
a. Computation (to the tenth decimal place XX.X):
The sum of Factors 1, 2, 3, and 4.
b. Criterion: The blended score must be greater than or equal to 7.0, and each of the
four factor’s criteria must be met. If the criterion is met, and all factor criteria are
met, the state passes the Effective Audit Measure. If the blended score criterion is
not met, or any one of the four factors is not met, the state fails the Effective
Audit Measure.
Reporting Frequency: Annually
Definitions for ETA 581 Item Numbers:
1) Item 1 – Number of Contributory Employers
2) Item 47 – Total Audits
3) Item 48 – Total Calendar Quarters Audited
4) Item 49 – Total Wages Audited – Pre-Audit
5) Item 50 – Total Wages Audited Post-Audit
6) Item 52 – Number of Employees Misclassified
7) Item 53 – Total Wages Under-reported
8) Item 56 – Total Wages Over-reported
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