Nelson Design Disputes Jobless Benefits Debt

Michael Nelson, owner Nelson Design Group: “It’s been the worst hell that we’ve had to go through for 10 years.”

The Nelson Design Group LLC in Jonesboro has been fighting with the Arkansas Department of Workforce Services over debts that date back to the Great Recession.

“It’s been the worst hell that we’ve had to go through for 10 years,” said Michael Nelson, owner of the house design business.

Nelson had 44 employees and was growing before the economic meltdown. Nelson Design began laying off about two-thirds of its staff in 2007. Most of those employees filed for unemployment benefits.

Nelson said his company had $72,000 in its account with DWS for the unemployment insurance program before the recession. “The crash came all of a sudden and turned everything upside down,” he said. “Everybody was claiming unemployment.”

As a result of the claims, the company burned through its account at DWS plus an additional $50,000. “In 2009, [DWS] started coming after us by saying you owe us $50,000 because your reserve is empty,” Nelson said.

He said he couldn’t pay it, and, with interest and penalties, his company now owes DWS $106,000.

Nelson said if DWS hadn’t extended unemployment benefits during the Great Recession as a result of a federal program designed to stimulate the economy, his reserves wouldn’t have been drained so quickly.

DWS said it couldn’t comment on a specific employer but disputes the impact the federal program to stimulate the economy had on a company.

In response to the recession, the federal government began adding weeks of unemployment insurance benefits, which had maxed out at 26 weeks, Pamela Vance, assistant director of unemployment insurance at ADWS, said in an email response to questions from Arkansas Business.

Nelson claimed some of his former employees received benefits for 18 months.

But Vance said the costs for extending the unemployment benefits came through the Emergency Unemployment Compensation program and were paid with federal funds. The EUC “did not impact employers’ state unemployment tax accounts or rates.”

In Arkansas, the federal stimulus package provided about $1.4 million to people who received benefits through Arkansas’ unemployment insurance program, she said.

“The extension would not have caused an employer to deplete their reserves,” she wrote.

14.3 Percent Rate
As a result of the Nelson Design Group’s low reserve amount at DWS, the unemployment insurance tax it paid before the recession climbed from 3.5 percent of payroll to 14.3 percent. That amounted to $22,800 annually compared with $5,600 previously. Nelson said his company continued to pay 3.5 percent because it couldn’t afford the higher rate.

Vance said when a company lays off two-thirds of its employees — as the Nelson Group did — its tax rate will “increase significantly.” She said 14.3 percent is the highest unemployment insurance tax rate allowed by the state.

Of 69,000 employers in Arkansas required to pay unemployment tax, approximately 1,000 have that rate, she said.

In 2016, the Nelson Design Group filed for Chapter 11 bankruptcy reorganization and listed $3.44 million in debts and $890,000 in assets.

“The Chapter 11 reorganization did not help this [debt with DWS] one bit at all,” Nelson said. “The only thing it did is stop the penalty and interest during that period of time.”

The bankruptcy case remains open.

Nelson said DWS recently offered to dramatically lower the 14.3 percent rate if Nelson Design can pay $50,000 by March 31. Nelson said he didn’t know if he will be able to pay that amount by then, even though his company is doing better financially.

“The economy is slowly growing,” he said. “We’ve been able to realize that we can do a lot of business with 15 employees because of technology advancements now that we didn’t have back then.”