A recent amendment to Alabama Employment Security Law makes the state law consistent with federal anti-SUTA dumping provisions.
The federal SUTA Dumping Prevention Act of 2004 was enacted to curb abuses by some employers and prevent manipulation of state unemployment tax rates by such actions as transferring payroll from one legal entity to another for the purpose of avoiding a tax rate based on experience. All states were required to conform to the new federal law.
Alabama passed legislation in 2005 to be consistent with the federal provisions, but the U.S. Department of Labor found that one section of the 2005 law was not in conformity. Failure to fix this issue would have potentially increased the amount of federal unemployment taxes paid by Alabama businesses by an estimated $700 million annually. SB147 was adopted on May 16, 2008, taking effect immediately, and resolving the conformity problem.
When an Alabama employer transfers its trade or business, or a portion thereof, to another entity, and when there is substantially common ownership, management, or control between the two entities, a transfer of unemployment experience is required. This prevents the “dumping” of less favorable experience by moving employees/payroll to an affiliated company with more favorable experience and/or a lower tax rate. The tax rates of both employers are recalculated and the new tax rates are effective on the date of transfer.
Further, when a company which was not previously an employer acquires the trade or business of another company, and when the Alabama Division of Industrial Relations determines that this acquisition was done solely or primarily for the purpose of obtaining a lower unemployment tax rate, the Division will disallow a transfer of unemployment experience and assign the new employer tax rate (currently 2.70%) to the acquiring company. This prevents buying a “shell company” just to obtain its unemployment tax rate.
The full text of SB147 is attached for your reference. If there are any questions please contact us.