The problem is that federal loans to the state UI trust funds can cause the net FUTA tax rate to increase for employers in the borrowing states.  The increases are in annual increments of 0.30% (on a $7,000 taxable wage base). Such an increase is referred to as a “credit reduction” because the 5.40% credit for state UI taxes paid is reduced.

The “normal” net FUTA tax rate of 0.60% (0.80% prior to July 1, 2011) is arrived at by subtracting the 5.40% credit for state UI taxes paid from the gross FUTA tax rate of 6.00%.  Given enough time, the credit reductions could theoretically cause an employer’s net FUTA tax rate to increase from 0.60% all the way to 6.00% as the credit is gradually reduced to zero.  The tax revenue generated by the credit reductions is credited to the state’s UI trust fund and reduces the state’s loan balance. 

A credit reduction can be removed for a given calendar year if a state repays its outstanding long-term loan by November 10 of that calendar year.  A credit reduction can also be avoided for a calendar year (as in South Carolina for 2011) if a state takes certain actions to restore the solvency of its UI trust fund. Further, a credit reduction can be capped (at no less than 0.60%) if certain conditions are met.  

For 2011, employers in twenty states (up from three states for 2010) and the Virgin Islands experienced FUTA credit reductions (i.e. tax increases).  Most of these states will not repay their federal loans in time to avoid a credit reduction for 2012 which will be greater than the credit reduction for 2011.  For example the net FUTA tax rate for California employers will most likely increase from 0.90% for 2011 to 1.20% for 2012, because the credit reduction will increase from 0.30% to 0.60%.  Further, as many as seven new states (AL, AZ, CO, DE, KS, SC, and VT) may have credit reductions this year.  

The budgeting problem is exacerbated by the fact that state UI agencies have until November 10 to repay their long-term loan and avoid a credit reduction for the calendar year in which the loan balance is repaid.  No official notification of credit reductions is provided until after November 10.  By that time employers have already submitted three quarterly FUTA deposits. Any shortfall must be paid with the final deposit for the calendar year (due January 31 of the succeeding year).

The attached chart shows you the possible FUTA credit reductions for 2012.  This is the best budgeting tool available, but you should bear in mind that one or more of the twenty-six at-risk states (plus the Virgin Islands) may repay their loan or qualify for a credit reduction avoidance.

Of particular note is Illinois, where legislation has been enacted to allow for a bond issuance that can be used to pay the outstanding loan and interest.  If the bond issuance occurs and the loan is repaid by November 10, 2012, the FUTA tax rate for Illinois employers will be reduced from 1.20% to 0.60%.

Similarly, legislation has been enacted in Arkansas that would allow the state to issue bonds to repay the loan balance.  However, this legislation requires that the bond issuance would have to be approved by a referendum, which adds some uncertainty to its prospects.

As always, if there are any questions please contact us.

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Recent UI program changes contrast sharply with the flurry of benefit expansion initiatives in 2009 and 2010.  In 2009, the American Recovery & Reinvestment Act (“ARRA”) created incentives for states to grant UI benefits in situations where benefits were previously disallowed.  Incentives (in the form of grants) were also made available for adding dependents allowances to UI benefit payments.  Many states opted to take the incentives and to liberalize the eligibility for UI benefits.  Over $4 billion in such grants has been distributed to states that complied.

Concurrent with the ARRA – driven expansion of UI benefit eligibility, the state UI agencies were forced to deal with developments of historical proportions.  The amount of UI benefits paid overwhelmed the agencies, in terms of workload and also in terms of funding.  As of this date, twenty-seven states and the Virgin Islands have outstanding federal loans totaling over $37 billion, because their UI trust funds have become insolvent. 

The thrust of more recent legislation and policy has been to pull back from the expansion of benefit payments to establishing limitations on eligibility, as well as prevention and recovery of overpayments.

In June of 2011 a Program Letter from the U.S. Department of Labor to the state unemployment agencies addressed an issue that had become apparent:  the inaccuracies and errors related to the payment of benefits.  The Department found that the rate of improper payments was a staggering 11.2%, amounting to $17 billion annually.  In other words, it had become necessary to make a concerted effort to improve the integrity of the benefit payment system.

There is now heightened activity at the state level to prevent overpayments that occur when a person who has been receiving UI benefits goes back to work but keeps drawing UI benefits. This is the single largest cause of overpayments, accounting for 29% of overpayments.  The state UI agencies are focusing on cross-matching the data collected in the Federal New-Hire Registry (including the first day of work) with the records of UI benefit payments, to more quickly identify and stop overpayments. There are also better tools now for collecting overpayments, including use of the Treasury “TOP” program to collect overpayments from income tax refunds.

The U.S. Department of Labor has partnered with eleven “high impact” states to aggressively address improper payments. The Department has also awarded approximately $192 million to states for projects related to program integrity.

This is a good place to mention that our company continuously monitors the benefit charges assessed to client tax accounts.  We cross-match the benefit charges with our database of claim and employment records and we file a protest of any benefit charges that we are unable to verify.  In these times of high error rates, this function has taken on heightened importance.

In addition to addressing the overpayment problems, there has been a quiet trend to pull back the reins on eligibility at the state level.  Some sentiment has now developed that it may not be possible to simply tax our way out of the current deficit funding, at the expense of employers, without also placing more restrictions on benefit eligibility.  This is a distinct change from the tenor of legislation in 2009 and 2010 that was motivated by availability of federal funds authorized by the ARRA.

Within the last year five states (AR, MO, MI, IL, and FL) have enacted laws that reduce the total number of weeks for which a person may receive UI benefits to less than 26 weeks.  Previously, every state paid up to at least 26 weeks of regular UI benefits (28 weeks in Montana and 30 weeks in Massachusetts), and this had been the case for decades.

Following are some examples (by no means a comprehensive list) of legislative provisions that were enacted in 2011, to limit and/or more closely control the payment of benefits.

Florida, HB 7005.  This bill revises the term “misconduct,” which results in a disqualification, to include conduct outside of the workplace and additional lapses in behavior.  The bill disqualifies a person due to receipt of severance pay.  It also requires a more robust initial skills review to help the claimant find new work.

Indiana, SB 86. This amendment states that an individual who is receiving UI benefits may be disqualified if the individual tests positive for drugs after a drug test given by a prospective employer or refuses to submit to a drug test.  The individual who is disqualified may not resume receiving UI benefits until a negative drug test is submitted to the UI agency.

Kansas, SB 77.  This bill repeals the provision that allows an individual to receive UI benefits for the one-week waiting period.  It also modifies the “trailing spouse” provision (which grants benefits to an individual who moves to stay with his/her spouse) to apply only to the spouses of personnel in the U.S. armed forces or military reserves.

Michigan, SB 0806. This amendment provides that after a claimant has received UI benefits for half of his/her benefit year, a job opportunity may not be considered unsuitable because it is outside of his or her training or experience or unsuitable as to the pay rate, if it pays at least 120% of the claimant’s weekly UI benefit amount.  The bill also requires that claimants must conduct a systematic and sustained search for work and report details of their work search at least monthly in order to qualify for benefits.  Also, an individual who is absent from work for three consecutive days or more without contacting the employer in a manner acceptable to the employer, if notified of this requirement at the time of hire, shall be considered to have voluntarily quit without good cause attributable to the employer (resulting in a disqualification).  Further, an individual claiming to have left work involuntarily for medical reasons, in order to qualify for UI benefits, must have done all of the following before leaving:  (1) secure a statement from a medical professional that continuing in the current job would be harmful, (2) unsuccessfully attempted to secure alternative work with the employer, and (3) unsuccessfully attempted to be placed on a leave of absence until able to return to the same position.

Ohio, HB 153.  This amendment prohibits an individual who works in seasonal employment from being paid benefits for those services for any week between two successive seasonal periods if there is reasonable assurance that the individual will return to the seasonal work in the next seasonal period.

Pennsylvania, SB 1030.  This amendment tightens up the requirements for making an active search for work. The requirements include (1) registration with the Pennsylvania CareerLink system, (2) posting a resume on the system’s database, unless the claimant is seeking work in a field in which resumes are not commonly used, and (3) applying for positions that offer employment and wages similar to those the claimant had prior to his/her unemployment and which are within a 45-minute commuting distance.  No work search is required if the claimant is on temporary layoff and has a recall date.  Further, the Pennsylvania CareerLink system must provide documentation at least quarterly to the Unemployment Compensation Service for purposes of monitoring the work search efforts.

Rhode Island, HB 5894.  This bill requires that severance or dismissal pay, whether or not the employer is legally required to pay it, shall be allocated on a weekly basis from the individual’s last day of work, and the individual will not be entitled to receive UI benefits for such weeks.  Previously, severance pay or dismissal pay was considered to be paid on the last day of work and this did not affect future UI benefits.  This amendment is effective July 1, 2012.

South Carolina.  New policies require claimants to accept job offers that pay incrementally less than their previous wages.  After four weeks of receiving UI benefits, a claimant must accept a job offering 90% of his/her previous wages.  The percentage drops every four weeks, to 70% after 16 weeks.  After federally paid extensions kick in, the claimant must accept any job offer that pays the minimum wage.

Finally, there is concern as to whether the federal extensions of benefits (EB and EUC) provide a disincentive to search for work to the extent that they are possibly self-defeating as a policy.  We do not claim to have the answer to this question.  However, we noticed that in the back-to-back recessions in the early 1980’s, the rate of total unemployment reached higher than during the 2007-2009 recession, yet the percentage of claimants who received benefits for 27 weeks or longer was much lower.  There may be many reasons for this, but it does make one wonder whether benefit extensions are in fact a contributing cause of the increase in the long-term unemployed.

Despite the efforts to improve program integrity and to increase standards for eligibility, as well as a slight decrease in the level of unemployment, we have yet to see a meaningful reduction in the funding deficit.  The federal loans to state trust funds are more or less unchanged, in aggregate, from a year ago.  Unfortunately, nothing has occurred to cause us to anticipate lower UI tax rate schedules any time soon.  In this environment it is especially important for companies to maintain effective controls relating to the processing of unemployment claims.

Your own company’s UI tax rate(s) is greatly affected by your own experience.  UI benefits that are paid to your former workers and charged to your tax account have a more pronounced impact on your tax rate when the tax rate schedules are high, as they are now.  Our coordinated efforts to avoid improper and unwarranted UI benefit charges, by submitting thorough and timely responses to UI claims, represent the single most important function in controlling your tax rate.

As always, please feel free to contact us with any questions or comments.

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In thirteen of the states, a higher tax rate table and/or higher adjustment factors take effect for 2012.  The most significant increases are in Florida and Nevada.  Many of these changes are directly caused by the depletion of the state UI trust funds, which triggers higher tax rates by statute.  Twelve states have lower (more favorable) rate tables, and eleven states have no changes or insignificant changes. 

We may be seeing the plateau in terms of statute-driven increases to tax rates. Of course, each company’s own experience is the most important factor in the tax rate calculation.

In eighteen of these states, the unemployment taxable wage base has increased.  In one state (Nevada) a rare decrease in the taxable wage base has occurred, from $26,600 to $26,400.

Following is a brief summary by state:

Alabama:  The same tax rate schedule (Schedule D) that was in effect for 2011 is in effect for 2012.  This is the highest tax rate table in the statutes.  However, the Shared Cost Assessment, which is charged to every employer, has decreased from 1.60% in 2011 to 0.60% in 2012.  As a result, the 2012 tax rates are more favorable than for last year, ranging from 1.25% to 7.40% (including the ESA assessment).  The Alabama unemployment taxable wage base remains unchanged at $8,000 for 2012.

Alaska:  A slightly less favorable tax rate table is in effect for 2012, with tax rates ranging from 1.31% to 5.40% (not including the 0.66% Employee Withholding Unemployment Tax Rate).  Additionally, the Employee Withholding Unemployment Tax Rate has increased from 0.58% for 2011 to 0.66% for 2012.  The Alaska unemployment taxable wage base has increased from $34,600 in 2011 to 35,800 for 2012.

Arkansas:  For 2012, tax rates continue to range from 1.20% to 7.10% (including the 0.80% Stabilization Tax, the 0.10% Extended Benefit Tax, and the 0.20% Advance Interest Tax).  In addition, employers that are assigned a contribution rate of 6.00%, and have had that rate for the two preceding years, will be assigned an additional assessment of 2.00% (for a total rate of 9.10%).  Furthermore, after two consecutive years of receiving the additional assessment of 2.00%, the assessment will be increased to 4.00% (for a maximum tax rate of 11.10%).  The Arkansas unemployment taxable wage base remains unchanged at $12,000 for 2012.

Arizona:  In general, Arizona unemployment tax rates are less favorable for 2012 for all employers with both positive and negative reserve account balances, with rates ranging from 0.02% to 6.38%.  The Arizona taxable wage base remains at $7,000 in 2012.

The Job Training Tax (JTT), which is separate from your state unemployment tax rate but reported on the same quarterly tax return, remains at 0.10% for all employers.  Moreover, Arizona has added the Special Assessment Rate (SAR) to collect funds used to repay federal loans that Arizona has obtained to continue to pay unemployment benefits to eligible claimants when the state’s unemployment trust fund became insolvent.   The SAR is 0.50% for all employers and is also separate from your state unemployment tax rate but reported on the same quarterly tax return.

California:  California’s highest tax rate schedule (Schedule F+), with tax rates ranging from 1.50% to 6.20%, remains in effect for 2012.  Adjustment factors continue to have a significant negative impact on reserve account balances for experience-rated employers.  The California taxable wage limit remains unchanged at $7,000.  The disability insurance taxable wage limit increased from $93,316 in 2011 to $95,585 for 2012.

Colorado:  The same rate schedule that was in effect for 2011 remains in effect for 2012, with tax rates ranging from 1.00% to 11.02% (including applicable surcharges).  The solvency tax surcharge is subject to change each year, but any increase to last year’s solvency tax surcharge has been credited back to your account, resulting in no net increase.  The Colorado unemployment taxable wage base has increased from $10,000 for 2011 to $11,000 for 2012.

Delaware:  For 2012, tax rates remain unchanged at the State Experience Factor of 54.  Tax rates for 2012 will continue to range from 0.30% to 8.20% (including the 0.20% Supplemental Rate, if applicable).  The Delaware unemployment taxable wage base remains unchanged at $10,500 for 2012.

District of Columbia:  The same tax rate table (Table V) used for 2011 is in effect for 2012, with tax rates ranging from 1.60% to 7.00%.  In addition, the unemployment taxable wage base for the District of Columbia remains unchanged at $9,000 for 2012.  Please note that the Administrative Assessment of 0.20%, which is assigned to all liable employers in addition to the unemployment rate, remains in effect for 2012.

Florida:  Your tax rate is the sum of three factors:  the Variable Adjustment Factor, the Final Adjustment Factor, and the Benefit Ratio.  While the Final Adjustment Factor and the Multiplier used for the Variable Adjustment Factor are both the same for all employers, the Benefit Ratio is determined on an individual basis according to the experience of the employer.

In general, Florida tax rates are significantly less favorable for 2012.  The Multiplier has increased from 0.5833 to 1.1382 and the Final Adjustment Factor has increased from 1.03% to 2.02%.  As a result, tax rates for 2012 will range from 2.02% to 5.40%.  In addition, the Florida unemployment taxable wage base has increased from $7,000 for 2011 to $8,500 for 2012.

Georgia:  The level of the Georgia Unemployment Trust Fund has not improved over the last year, with the Statewide Reserve Ratio (a measure of solvency) remaining at 0.00% for 2012.  As a result, the Base Rate Adjustment Factor has remained at 0.35% in 2012.  The range of tax rates also remains unchanged, with rates ranging from 0.03% to 7.29%.  In addition, the Georgia unemployment taxable wage base remains at $8,500 for 2012.

Idaho:  Although tax rates for 2012 will continue to range from 0.96% to 6.80%, the tax rate table is slightly less favorable for most employers because of a change in the reserve ratios and their corresponding tax rates.  For example, in 2011 a reserve ratio of 6.8952% earned a rate of 2.56%; whereas for 2012 the same ratio earns a rate of 3.20%.  The Idaho unemployment taxable wage base has increased from $33,300 for 2011 to $34,100 for 2012.

Illinois:  In general, unemployment tax rates are less favorable for 2012, except for employers assigned the minimum rate, because 1) the State Experience Factor has increased from 123% to 139%, and 2) the Fund Building Rate has increased from 0.50% to 0.55%.  Tax rates for 2012 range from 0.550% to 9.450%.  The Illinois unemployment taxable wage base has increased from $12,740 in 2011 to $13,560 for 2012.

Iowa:  Although tax rates for 2012 continue to range from 0.00% to 9.00%, the tax rate table is slightly more favorable for most employers because of a change in the benefit ratios and their corresponding tax rates.  For example, in 2011 a benefit ratio of 0.1515% earned a rate of 0.40%; whereas for 2012 the same ratio earns a rate of 0.20%.  Additionally, the Iowa unemployment taxable wage base will increase from $24,700 for 2011 to $25,300 for 2012.

Kansas:   Although the range of rates remains unchanged, the tax rate table is generally less favorable because of a change in the reserve ratios and their corresponding rate groups.  For example, in 2011 a reserve ratio of 16.1% earned a rate of 4.06%; whereas for 2012, the same ratio earns a rate of 5.24%.  The new rate schedule has no impact for some reserve ratios but more than doubles the tax rate for other reserve ratios.  Tax rates range from 0.11% to 9.40%.  Two surcharges are added to the tax rates for employers with negative reserve account balances.   In addition to the Surcharge to Trust Fund (which was also assessed last year), another surcharge entitled the Surcharge to Interest Assessment Fund is added this year.  This surcharge ranges from 0.20% to 2.00%, depending on the Rate Group.  It funds the interest due on loans received from the federal unemployment account.  The tax rate for new employers remains at 4.00% (unchanged).  The Kansas unemployment taxable wage base remains at $8,000 for 2012.

Kentucky:  The same tax rate table is in effect for 2012, with tax rates ranging from 1.00% to 10.00%.  The Kentucky unemployment taxable wage base has increased from $8,000 for 2011 to $9,000 for 2012.

Louisiana:  Although the tax rate table for 2012 remains the same as 2011, the Social Charge Rate (Item 13) has decreased from 44.34% for 2011 to 27.51% for 2012.  As a result, tax rates are slightly more favorable for 2012 and will range from 0.10% to 6.20% (including the applicable Social Charge Rate).  Additionally, the Louisiana unemployment taxable wage base remains unchanged for 2012 at $7,700.

Maine:  Although the same tax rate schedule (Schedule M) that was in effect for 2011 remains in effect for 2012, tax rates are slightly less favorable for most employers because of a change in the reserve ratios and their corresponding tax rates.  For example, in 2011 a reserve ratio of 16.00% earned a rate of 2.25%; whereas for 2012 the same ratio earns a rate of 2.45%.  As a result, tax rates will range from 0.88% to 8.10% for 2012.  The Competitive Skills Scholarship Fund (CSSF) Assessment Rate remains at 0.06% for 2012.  The Maine unemployment taxable wage base remains at $12,000 for 2012.

Minnesota:  For 2012, there have been no changes to the Base Tax Rate (0.50%) or the Additional Assessment (14.00% of UI tax due).  However, the Workforce Development Fee has decreased from 0.12% in 2011 to 0.10% in 2012 (0.10% of taxable wages) and the Federal Loan Interest Assessment has decreased from 2.00% in 2011 to 0.50% in 2012 (0.50% of UI tax due).  Please note that the Minnesota unemployment taxable wage limit has increased from $27,000 in 2011 to $28,000 in 2012.

Your “UI Tax Rate before Additional Assessment” consists of your experience rating component (or the new-employer rate, if applicable) and the Base Tax Rate of 0.50% (which is the same for every employer).  The Additional Assessment (14% of UI tax due), Workforce Development Fee (0.10% of taxable wages), and Federal Loan Interest Assessment (0.50%) are added to arrive at your total quarterly amount due.  There are several line items on the state’s interactive screen where you file quarterly on-line reports.  The figures for “Quarterly Unemployment Taxes Due” and the “Additional Assessment” are the only items which should be included and reported as state contributions on your annual federal unemployment tax return (Form 940).

Missouri:  A less favorable tax rate table is in effect for 2012, with tax rates ranging from 0.00% to 7.80% (plus any applicable surcharges).  However, the Missouri unemployment taxable wage base will remain unchanged at $13,000 for 2012.

Montana:  Although the same tax rate schedule (Schedule VII) remains in effect for 2012, with tax rates ranging from 1.00% to 6.30%, it is actually slightly less favorable because of a change in the reserve ratios and their corresponding tax rates.  For example, in 2011 a reserve ratio of 0.049759 merited a tax rate of 2.42%; for 2012, this same ratio merits a tax rate of 2.62%.   The Montana unemployment taxable wage base will increase from $26,300 in 2011 to $27,000 for 2012.

Nebraska:   The 2012 UI tax rates are higher than last year for Nebraska employers in the lowest tax rate brackets. For example, a reserve ratio of 13.0 earned a tax rate of 1.50% last year, but the same reserve ratio results in a tax rate of 2.62% for this year.  On the other hand, rates are lower for employers in the higher tax rate brackets. For example, the highest tax rate is not as high as last year’s highest rate (6.49% vs. 8.66%).  The Nebraska unemployment taxable wage base remains at $9,000 for 2012. 

Nevada:  Tax rates are significantly higher for 2012, especially for employers with positive reserve balances, where rates are 17% to 240% higher. The range of tax rates remains unchanged for 2012 (from 0.30% to 5.40%, including the 0.05% CEP rate), but the tax rate table is much less favorable.  For example, in 2011 a reserve ratio of 3.20% earned a tax rate of 1.50%, whereas in 2012 this same ratio earns a tax rate of 2.05%.  The Nevada unemployment taxable wage base has decreased from $26,600 in 2011 to $26,400 for 2012.

North Carolina:  The same tax rate table (Schedule A) remains in effect for 2012, with tax rates ranging from 0.00% to 6.84% (including the applicable State Reserve contribution rate).  The North Carolina unemployment taxable wage base has increased from $19,700 in 2011 to $20,400 for 2012.

North Dakota:  The tax rate table is slightly more favorable for 2012 with tax rates ranging from 0.20% to 9.91%. The North Dakota unemployment taxable wage limit has increased from $25,500 in 2011 to $27,900 for 2012.

Ohio:  The tax rate schedule for 2012 is slightly more favorable than the previous rate year, with tax rates ranging from 0.70% to 9.10%. While ten of the rate brackets will remain unchanged, thirty of the rate brackets have decreased slightly. The Mutualized Contribution Rate remains unchanged at 0.40%. The state unemployment taxable wage base remains at $9,000 for 2012.

Oklahoma:  In general, tax rates are less favorable for 2012 because the State Factor (Item 5) has increased from 46% to 47%.  The State Conditional Factor (Item 6) remains at “D” for 2012.  Tax rates for 2012 range from 0.30% to 9.20%.  The Oklahoma unemployment taxable wage base has increased from $18,600 in 2011 to $19,100 for 2012.

Oregon:  Tax rates for 2012 continue to range from 2.20% to 5.40%, but the tax rate table is slightly more favorable because of a change in the benefit ratios and their corresponding tax rates.  For example, in 2011 a benefit ratio of 0.0010% earned a rate of 2.30%; whereas for 2012 the same ratio earns a rate of 2.20%.  The Oregon unemployment taxable wage base has increased from $32,300 in 2011 to $33,000 in 2012.

South Carolina:  For 2012, total effective tax rates are slightly more favorable because the interest surcharge ranges from 0.098% to 0.546%, compared to 0.103% to 0.609% for 2011. Tax rates range from 0.0980% to 8.6860% (including the contingency assessment and applicable interest surcharge), compared to 0.103% to 8.789% for 2011.  The South Carolina unemployment taxable wage base has increased from $10,000 for 2011 to $12,000 for 2012.

South Dakota:  Both the contributions and investment fee rate schedules remain unchanged for 2012, with combined tax rates ranging from 0.00% to 10.03%.  However, there was no new shared cost assessment deducted from your account, which last year amounted to .26399% of your 2010 taxable payroll.  As a result, tax rates are generally lower. The South Dakota unemployment taxable wage base has increased from $11,000 in 2011 to $12,000 for 2012.

An unemployment insurance surcharge, which is a permanent part of South Dakota law, automatically goes into effect when the UI Trust Fund has a low or negative balance.  Due to the continued solvency of the Trust Fund, the surcharge remains at 0.00% for the first quarter of 2012.  Please be aware that the surcharge rate is subject to change each calendar quarter, and you will be notified of any changes throughout 2012.

Texas:  Unemployment tax rates are slightly more favorable than they were for 2011. The Replenishment Tax Rate component has decreased from 0.56% in 2011 to 0.42% in 2012 for all experience-rated employers.  However, the Replenishment Ratio has increased from 1.28% in 2011 to 1.32% in 2012.  The Bond Obligation Assessment Rate component remains part of the calculation for 2012.  The Deficit Tax Rate component remains at zero for 2012.  Overall, tax rates range from 0.61% to 8.14% in 2012.  The state unemployment taxable wage base remains at $9,000.

Utah:  In Utah, the Reserve Factor (Item F) and the Social Costs Factor (Item H), along with the employer’s individual experience, are used to arrive at the Overall Computed Rate (Item I).  Although the Reserve Factor has decreased from 1.45% in 2011 to 1.30% in 2012, the Social Costs Factor increased from 0.40% in 2011 to 0.50% in 2012.  The overall impact of these changes makes for a slightly less favorable tax rate schedule for 2012.  Including all factors, tax rates for 2012 range from 0.50% to 9.50% (not including rates assigned to employers who have unpaid contributions for the fiscal year ending June 30, 2011).  The Utah unemployment taxable wage base has increased from $28,600 in 2011 to $29,500 in 2012.

Virginia:  In general, tax rates are less favorable in Virginia for 2012.  Although the Fund Balance Factor remains unchanged at 50%, the Pool Cost Charge has increased from 0.47% to 0.53%.  Additionally, the Fund Building Charge of 0.20% remains part of the tax rate calculation.  Tax rates for 2012 range from 0.83% to 6.93%. The Virginia unemployment taxable wage base remains unchanged at $8,000.

Washington:  In general, tax rates have become significantly more favorable for 2012 for two primary reasons:  First, the Social Cost Factor Tax Rate has decreased with a range of 0.14% through 0.42% for 2012.  Second, a more favorable tax rate table has been implemented, with rates for non-delinquent employers ranging from 0.17% to 5.84% (including the Employment Administrative Fund Rate).  The Washington unemployment taxable wage base has increased from $37,300 in 2011 to $38,200 for 2012.

West Virginia:  The same tax rate table remains in effect for 2012, with tax rates ranging from 1.50% to 8.50%.  The West Virginia unemployment taxable wage base remains unchanged at $12,000.

Wisconsin:  The same tax rate schedule (Schedule A) remains in effect for 2012, with tax rates ranging from 0.27% to 9.80% (including the solvency rate).  The Wisconsin unemployment taxable wage base remains at $13,000 for 2012.

Wyoming:  Your tax rate is the sum of four factors:  the Noncharge/Ineffective Charge Adjustment Factor and the Employment Support Fund Factor (which are the same for all employers), and the Fund Balance Adjustment Factor and the Benefit Ratio Rate (which are determined on an individual basis, according to the experience of the employer).

Although the Fund Balance Adjustment Factor (Item 6) has increased for all employers (from 0.22 to 0.24 for employers at the minimum tax rate, and from 1.05 to 1.09 for new and all remaining experience-rated employers), the Noncharge/ Ineffective Charge Adjustment and Employment Support Fund Factors (Items 4 and 5) have decreased (from 0.27 to 0.246 and 0.18 to 0.164, respectively).  The net result is slightly more favorable tax rates, which range from 0.65% to 10.00% for 2012.  The Wyoming unemployment taxable wage base has increased from $22,300 in 2011 to $23,000 for 2012.

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* The 2012 taxable wage base for Rhode Island employers in the highest tax group (those at the rate of 9.79%) will be $21,100.

If there are any questions, please contact us.

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State unemployment tax rates in Alaska are computed differently than in any other state.  Generally speaking, your tax rate is based on changes in your total payroll from one quarter to the next, over a three-year period.

When an employer’s payroll declines in comparison to the previous quarter, this causes the tax rate to increase.  The theory is that an employer with declining payroll or unstable payroll is contributing to unemployment, and should pay a higher tax rate.  Conversely, an employer whose payroll is consistent from one quarter to the next, or whose payroll increases from one quarter to the next, is rewarded with a low tax rate.

Some employers experience payroll declines from time to time which are “artificial,” in that they are caused by such things as bonuses or lump sum payments in one quarter which are not repeated in the next quarter, or by having an extra pay date in a quarter which can occur with bi-weekly payrolls.

The Alaska Department of Labor allows employers to adjust for these artificial payroll declines.  Enclosed is material on this subject, as well as examples of the three forms which can be used to adjust your quarterly payroll.

If your gross payroll occasionally declines for one of these “artificial” reasons, your tax rate for future years can be lowered by using the attached adjustment forms.  In this case, we suggest that you review the attached material carefully.  Remember, that a decline in quarterly payroll in Alaska can adversely affect your tax rate for the following three years. 

Adjustments may be taken into account within two years after the computation date for the purpose of a reduction in the tax rate.  Through June 30, options can be used to reduce the rate for the preceding calendar year as well as the current year.  From July 1, only the current year’s rate can be changed, but the lower rate would be retroactive to January 1 of the current year. 

Click here if you wish to review the three option forms, to determine if you have an opportunity to “smooth out” your quarterly payrolls, thereby reducing your UI tax rate.

If there are any questions or you would like additional information regarding this matter, please do not hesitate to contact us.

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The gross FUTA tax rate is 6.20% on the first $7,000 of wages per worker for January through June of 2011, and 6.00% for July through December 2011.  Employers usually receive a credit of 5.40% for paying state UI taxes timely, resulting in a net tax rate of 0.80% for January through June of 2011 and 0.60% for July through December of 2011.  For employers in states with long-term UI loans, the 5.40% credit may be reduced in 0.30% increments.

South Carolina, which had a 0.30% credit reduction for 2010, qualified for a zero credit reduction for 2011 by taking legislative action to restore solvency to its state UI trust fund.

The Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, has been redesigned for 2011 to accommodate the mid-year change in FUTA rates.  Click here for a copy of the new Form 940 and Schedule A is attached.

As always, please feel free to contact us if there are any questions.

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Following are comments regarding the provisions that are related to unemployment compensation: 

1. The bill would extend 100% federal funding of most extended benefits (EB) by one year.  The federal funding would include EB paid to individuals who started receiving EB before January 4, 2013.  Without this provision, EB will revert back to being 50% federally funded and 50% state funded in 2012.  To the extent that EB is state-funded, such benefit payments can affect your UI tax rates.
2. The bill would extend by one year the temporary modifications to EB triggers, which make it easier for EB to be payable, to December 31, 2012.  Without this provision we would expect EB to trigger off in most if not all states by the end of this year.  EB benefits are available for up to 13 weeks in some states and 20 weeks in other states, when they are triggered on by high unemployment.
3. The bill would require states to provide certain reemployment services to EUC recipients, such as an assessment of the individual’s skills, job search counseling, and development of a reemployment plan.  Federal funds would be provided for this purpose.
4. The bill would permit the payment of EUC as self-employment allowances (SEA) for up to 26 weeks.  Participation would be capped at 1% of the number of individuals receiving EUC.
5. The Bridge to Work Program would be established.  Eligible individuals would have the option to engage in short-term work experience with an employer, and continue to receive EUC while working.  The individual could also receive compensation from the employer or the state, in addition to EUC.  Bridge to Work placements could last up to 8 weeks.  This program would provide the participating employer with a low-risk trail period to evaluate whether a long-term unemployed person should be offered a full-time job.
6. The bill promotes short-time compensation programs (STC), otherwise known as worksharing or shared work programs.  STC programs are a strategy to avoid layoffs.  Under such programs, employers reduce the workweek of a group of employees in lieu of temporary layoffs and the affected employees receive a pro-rated share of their weekly UI benefit amount for the period of reduced hours.  Without an STC program, an individual’s UI benefits would be greatly reduced and often completely unavailable during a period of reduced work hours.

Twenty-two states currently have STC programs and several additional states are considering them.  The problem has always been that such programs increase the amount of UI benefit payments (the intended purpose), and such payments are charged to the tax accounts of participating employers, thereby affecting their tax rates.  The trade-off is that the employer retains experienced, skilled workers who might otherwise have found employment elsewhere if they were layed off.  Grants would be made available to states to incentivize them to enact an STC program and to make greater use of such programs if they already have one.  States could receive temporary federal funding of 100% of STC benefits for up to 26 weeks for eligible individuals.  The federal fund would be made available for 3 years.  Of course, after the federal funding expires, any STC benefits will once again be charged to employer tax accounts.

In summary, none of the provisions in the American Jobs Act would have a direct impact on state UI tax rates.  However, the question remains as to whether benefit extensions (EUC and EB) create a disincentive for a claimant to search for work, and therefore increase the average duration of regular UI benefits, which in turn would increase UI tax rates.

As always, please do not hesitate to contact us if there are any questions.

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The headline figure of 99 weeks is a combination of 26 weeks of UI, 20 weeks of EB, and 53 weeks of EUC.  All three programs are facing developments that may reduce or eliminate benefits.

The EUC program is set to expire on January 4, 2012.  There will be a phase out period lasting into June for individuals who have already qualified for EUC by that date.  Currently the EUC program has four tiers, depending on the level of unemployment in a state.  Claimants in all states may receive at least 34 weeks of EUC, and claimants in 24 states (the Tier 4 states) may receive up to 53 weeks of EUC (see attached list of states).  President Obama has already advocated to extend the EUC program beyond January 4, but it is by no means certain that Congress will agree on this.

The Extended Benefits (EB) Program will not expire in January, but it will become much more restrictive if Congress fails to act.  There are certain triggers that make EB available for up to 13 weeks in some states and 20 weeks in other states.  However, one of these triggers is temporary and is set to expire December 31, 2011.  When it expires, the spigot will close and we expect that EB benefits will end in most if not all states.  With few exceptions, only states that have enacted the temporary three-year look back trigger have an active EB program paying benefits.  Attached is a list showing the number of weeks that EB is available in each state, as of September 25, 2011.  When EB benefits trigger off, they stop immediately, with no phase-out period.

With respect to regular UI benefits, there has been an interesting development.  For decades the maximum duration of UI benefits has been at least 26 weeks in every state (28 weeks in Montana and 30 weeks in Massachusetts).  However, there is no federal requirement that UI benefits must be available for 26 weeks.  In 2011 five states (AR, MO, MI, IL, and FL) have taken legislative action to reduce the maximum duration of UI benefits.  This is part of the effort to restore solvency to the state UI trust funds, which have suffered heavy withdrawals since 2008.  See the attached chart for more specific information.

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Originally, the Department announced that employers would have a special interest assessment issued to them in June to cover the interest due on the outstanding federal loan.  At that time, Delaware estimated that the surcharge would be approximately 0.12% of each employer’s taxable payroll for calendar year 2010.  This would have resulted in a maximum additional tax due of $12.60 per employee.  However, because of Governor Markell’s initiative to repay interest out of the state’s budget, Delaware employers will not be charged an interest assessment during 2011.

Click here for a copy of the Department’s letter to employers mailed on July 20, 2011.

As always, if there are any questions please do not hesitate to contact us. 

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Change in tax rate calculation for 2012 through 2014

As a benefit-ratio state, Florida assigns employers an unemployment tax rate by comparing an employer’s total benefit charges with their total taxable payroll over a rolling three-year period.  House Bill 7005 temporarily reduces the total benefit charges used in the tax rate calculation.  Specifically, benefit charges for the period from July 1, 2007 through March 31, 2011 are to be reduced by 10% for the purpose of computing the UI tax rate.  The greatest impact of this provision will be in the 2012 tax rate calculation and will taper off for 2013 and 2014.  The Florida Department of Revenue estimates that the resulting tax rates will save employers on average $33 per employee in unemployment taxes during 2012.

Initiatives to help UI claimants become reemployed

Getting claimants more engaged in reemployment activities and fulfilling their job search requirements are critical to reducing the duration of UI claims and improving the solvency of the UI trust fund.  Two provisions in the amendment address this need.  First, claimants will be required to actively seek work to qualify for benefits.  The amendment states “this means engaging in systematic and sustained efforts to find work, including contacting at least five prospective employers for each week of unemployment claimed.”  This can be accomplished by using the state’s online job matching system, where jobs are posted and applications can be submitted.  If a claimant is not able to make five employer contacts in a week, he/she may report in person to a One-Stop Career Center and meet with a representative to satisfy the requirement.

Secondly, an initial online skills review must be completed when filing a new claim.  This review will then be used to match the claimant with job openings that align with the claimant’s abilities and experience.  Other states which have focused on more in-depth profiling, such as Utah, have reported good results in facilitating reemployment.

New Limitations on UI Benefits

Prior law allowed for regular UI benefits to be paid for 26 weeks (26 times the weekly benefit amount).  This has been the standard in most states.  House Bill 7005 indexes the maximum duration of benefits to the state’s seasonally adjusted unemployment rate, so that the new maximum duration will range from 12 to 23 weeks.  Given the current level of unemployment, we estimate that the maximum duration of benefits in 2012 will be in the range of 21 to 23 weeks (not accounting for any possible federal extended benefits).

This bill also changes the standard for establishing “misconduct,” which disqualifies a claimant.  The new provisions specify that misconduct may include activities that did not occur at the workplace or during work hours.  This will support employers in situations where the person’s off-duty behavior adversely impacts the company’s reputation.

The definition of misconduct has been changed from “conduct demonstrating willful or wanton disregard of an employer interests” to a “conscious disregard.”  The prior wording had its roots in an early Wisconsin precedent case which many states have used thereafter to define misconduct.  We think the new wording is intended to lower the bar for establishing misconduct, but whether this will translate into more favorable rulings for employers remains to be seen.

Under the new law misconduct includes “chronic absenteeism or tardiness in deliberate violation of a known policy of the employer or one or more unapproved absences following a written reprimand or warning relating to more than one unapproved absence.”  In our view this is a very significant provision.  Many employer policies use a point system for disciplinary action relating to absenteeism and tardiness.  Historically, a discharge resulting from exceeding the allowable points has frequently resulted in an approved unemployment claim because the reason for the last absence, while not addressed by the point system, may not establish misconduct under UI law.  We expect the new statute to be more supportive of employers using the point system.

Finally, a change relating to severance pay is favorable to employers.  The new statute states that “the number of weeks that an individual’s severance pay disqualifies the individual is equal to the amount of the severance pay divided by that individual’s average weekly wage received from the employer that paid the severance pay, rounded down to the nearest whole number, beginning with the week the individual is separated from employment.”  Note that severance pay will offset UI benefits whether it is paid in a lump sum or in periodic payments.  Severance pay has the effect of delaying the receipt of UI benefits but it generally does not affect the total amount of UI benefits that may be paid.  However, when a person receives severance pay and later becomes reemployed before receiving the maximum possible UI benefits, the severance pay has effectively reduced the total benefit payments.

The combined impact of the three-year tax relief and the more stringent benefit eligibility conditions will save Florida employers an estimated $100 million annually.

As always, if there are any questions, please feel free to contact us at (615) 242-8246.

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