Mike Nelson Disputes His Firm’s Debts to State Workforce Services

The Great Recession was very bad for Mike Nelson.

His Jonesboro business, Nelson Design Group, sells home designs to builders and homebuyers, and revenue that reached $4 million in 2006 was down to $1 million by 2008.

To respond, Nelson similarly cut his workforce from 44 to 10 in 2007-08, and some of those former employees joined the thousands of Arkansans collecting unemployment benefits.

Six years later, Nelson is still dealing with the fallout: a $51,000 debt to the Department of Workforce Services that he says he doesn’t understand and can’t get explained.

One thing is clear: Deciding for himself how much he was willing to pay the DWS didn’t solve his problem.

The $51,000 debt represents the difference between the $73,000 that Nelson Design Group had paid in unemployment insurance dues and the $124,000 that DWS says it paid in benefits to Nelson’s laid-off workers.

Nelson said — and has been saying since 2010 — that he won’t pay up until the state shows him exactly why he owes that much. Officials with Workforce Services said quarterly statements regarding unemployment benefit outlays are sent to businesses so Nelson should have all that information in his files.

To make up the gap between what Nelson paid into his business’ unemployment insurance fund with the state and what the state paid out in unemployment benefits, the Department of Workforce Services has raised his contribution rates over the past six years from 3 percent to 11. 

It’s the cold hard fact of insurance: When it gets used, the cost of it goes up.

“That’s the way it is with Nelson Design and Wal-Mart and every employer in the state,” said Mike Moore, a Little Rock attorney with Friday Eldredge & Clark whom Nelson retained.

Moore said he didn’t want to discuss the specifics of Nelson’s case because he is in discussions with the Department of Workforce Services to come to a mutually acceptable solution. Becky Heflin, the communications director for the Department of Workforce Services, said the state agency was prohibited from discussing specifics because of concerns about privacy.

How Rates Are Determined

In an email sent through Heflin, officials with Workforce Services’ unemployment insurance division said the determination of rates is straightforward. Businesses start with a base contribution rate of 3 percent of the business’ payroll factor, and it remains stable for three years.

Payroll factor is the figure the state arrives at by taking the average of either three or five years of taxable payroll, whichever is lowest.

After three years, the contribution rate is recalculated based on how much the business has in its reserve. If a business has contributed money and no former employee filed a benefits claim, then the rate would stay the same or go down.

If a business had seen its contribution distributed — as many did during the recession — then the recalculation would bump the rate up to as high as 6 percent. In two years, if the company’s reserve remains in the red, the rate would go up again.

“The rate is calculated by dividing the difference in contributions paid and regular benefits charged by the annual taxable payroll to determine the reserve ratio,” according to the DWS explanation. “The higher the reserve ratio is, the lower the rate will be.”
What has exacerbated Nelson’s dispute with the state is his refusal to pay more than his previously calculated rate of 3 percent. When the department first alerted Nelson in 2009 that it had paid out more in unemployment benefits than Nelson Design had paid in, Nelson said he decided to pay 3 percent plus an extra $750 per month to close the gap. 

Nelson said he thought the state was mistaken about the benefits paid out and would soon correct the error. The extra money he paid in would just cushion his reserve.

But a year passed, and the state had not changed its math. In 2010, Nelson told DWS that he would not pay until the department showed him exactly where the $124,000 supposedly went. 

Meanwhile, Nelson Design’s unemployment insurance reserve ratio continued in the red, and the company’s contribution rate continued to be recalculated upward every two years. The highest rate allowed by state statute is 14 percent, and Nelson said the department has told him it plans to file for a judgment against him since he has refused to pay the increased rate or the $51,000 shortfall.

“At any point during this process if the employer gets a positive reserve, the rate will go back down to the rate associated with the positive reserve, plus add-ons,” according to DWS. “If a deficit employer is paying at a rate lower than the calculated rate, it would be very difficult to get out of deficit status.”

‘An Injustice’

Nelson said he and his accountant are going through his old files to find the quarterly reports Workforce Services sent him. He doesn’t believe his former employees collected $124,000 in benefits, and if they did, he doesn’t believe he should be responsible for all of it.

For instance, he doesn’t like the rule that allows people to collect from previous employers if they have then gone on to subsequent jobs that lasted less than 15 months. 

Nelson said he found jobs for many of the people he laid off during the two years of recession, so they should have collected little or nothing in unemployment benefits. When he felt the state was being uncooperative, he dug in his heels and his unemployment reserve dropped further and further into negative numbers.

“The system is screwed up,” Nelson said. “It’s unbelievable. There’s an injustice taking place in the state of Arkansas that is undermining the small businesses of Arkansas. We were a growing business and were forced to lay off people. It’s like they’re trying to run us out of business.

“We feel we’re not being taken care of. We’re being raked over the coals.”

Nelson said he has heard that many other small businesses have similar complaints about raised rates, but state Sen. John Cooper, R-Jonesboro, whom Nelson contacted about his disagreement, said there don’t seem to be widespread complaints. Workforce Services officials, through Heflin, said they don’t keep statistics of complaints.

Moore, Nelson’s attorney, said the rate calculation is determined by state statute but the subject can be complicated and confusing for employers. 

“It would take me an hour to explain it to you,” said Moore, adding that he didn’t have an hour. Moore said he was confident something could be worked out with Workforce Services.

Nelson isn’t as confident in DWS, which he said had made him feel like the state doesn’t care if his business survives. He wants to expand his business again now that the economy and home construction seem be recovering, but he said he can’t do that with the unemployment insurance debt hanging over his head.

Nelson also understands that, in the end, he may be on the hook for $51,000 and increased contributions until it is paid off. 

“The state doesn’t care if I survive,” Nelson said. “Worst-case scenario, I’d have to take the hit, make out a payment plan and go on.”