In Tennessee, SB 884 was signed by Governor Haslam on April 4, 2012. This bill permits an employee to qualify for UI benefits if he/she terminates because his/her military spouse has been reassigned and relocated. The employer’s UI tax account will not be charged for such benefits.

In Utah, HB 263 was signed by Governor Herbert on March 15. This bill also grants UI benefits and relieves the employer of benefit charges when an employee voluntarily quits to follow a military spouse, and when it is impractical for the employee to commute from the new locality.

In West Virginia, HB 4007 was signed by Governor Tomblin on April 2, 2012.  This bill also grants UI benefits to the employee who voluntarily leaves to accompany a military spouse who is on active duty and who has been reassigned.  As in Tennessee and Utah, the employer is not charged for such benefits.

We first noticed a trend to approve UI claims filed in this situation four years ago, when only eight states (AR, CT, FL, GA, MT, NM, SC, and TX) had such statutes in place. Since then, the Recovery Act was enacted in 2009, providing incentives to states to grant benefits when any employee resigns to accompany a spouse (whether military or non-military) who has been transferred. 

Now there are 42 states that grant benefits when an employee moves to accompany a spouse (military or non-military) who has been transferred. The three states that recently passed legislation (TN, UT, and WV) did not adopt the broader provisions relating to workers with non-military spouses.

As a reminder, when regular UI benefits are paid, there are circumstances when such benefits are not chargeable to a specific employer’s UI tax account (sometimes referred to as noncharging or relief from charges). In such cases, the benefit payments do not directly affect the employer’s UI tax rate. Such benefits are pooled costs. Nevertheless, the UI benefit payments are drawn from the state’s UI trust fund, impacting on the future tax rates for all experience-rated employers in the state. Employers in Tennessee, Utah, and West Virginia will indeed fund the expansion of benefits resulting from recent legislation.

The granting of UI benefits when an employee resigns because a spouse is transferred is an interesting public policy issue.  As a practical matter, part of the cost of relocation (lost wages) has been shifted to employers who are already adversely impacted by losing the employee, and who had no control over the employee’s decision to resign. Perhaps overlooked is the fact that the employer whose worker has relocated now has the burden of hiring and training a replacement.

Clear to us is the fact that public sentiment has shifted since 2008 to providing more financial support for workers who are compelled to resign for legitimate family reasons.  As a result, a whole new pool of UI eligible individuals has been created in a relatively short period of time.

A raft of state legislation to grant UI benefits in certain voluntary quit situations has occurred during and in the aftermath of a recession, but the statutes will remain in force when the recession is a distant memory. In most states the long-term impact of this broad expansion of UI benefit eligibility will be UI tax rates that are consistently higher than pre-recession levels.

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

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The bill increases the state unemployment taxable wage base from $8,500 to $9,500 effective January 1, 2013.  This increases an employer’s tax liability by 11.70% for each full-time worker.

Additionally, an adjustment factor will increase, causing UI tax rates for experience-rated employers to increase. The Base Rate Adjustment Factor currently increases an employer’s base rate by 35% to arrive at the total UI tax rate. Beginning in 2013 this factor will increase to 50% whenever the state has an outstanding federal UI loan and a fund balance of less than $1 billion. This constitutes an 11.10% increase in assigned rates.

Realistically, higher UI taxes in Georgia were unavoidable. As a percentage of total wages, UI taxes in Georgia have been significantly lower than the national average for many years. As a result, the trust fund held inadequate reserves when the recession began (see below).

The maximum duration of UI benefits is reduced by this bill, from 26 weeks to a range from 14 weeks to 20 weeks, depending on the state unemployment rate. The maximum of 20 weeks applies when the state UI rate equals or exceeds 9%, as it does now.  The potential number of weeks of benefits decreases as the unemployment rate decreases, settling at 14 weeks when the unemployment rate is at or below 6.50%.

The provision relating to benefit duration is effective July 1, 2012.

Most state UI laws permit regular UI benefit payments for a maximum of 26 weeks.  Georgia joins six other states (Arkansas, Florida, Illinois, Michigan, Missouri, and South Carolina) in reducing the maximum duration of a UI claim.  Last year Florida adopted a sliding scale of 12-23 weeks.

Click here for a copy of HB 347.  As always, if there are any questions please feel free to contact us.

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SIDES (State Information Data Exchange System) provides a standardized format for responding to UI claims electronically. It permits us to receive a UI claim form electronically, submit a response electronically, attach documentation when needed, and receive a date-stamped confirmation of receipt. SIDES has the potential to reduce follow-up phone calls from UI agencies, reduce paper handling and postage, and provide more response time for HR Departments by eliminating mail delays.

There are multiple layers of security incorporated into the SIDES program because of the sensitivity of the information that is exchanged.

The state UI agencies are being encouraged and supported by the U.S. Department of Labor to develop SIDES capability.  It is anticipated that 42 states will have SIDES programs in place by the end of September.

At Thomas & Thorngren, Inc., we have been coordinating with NASWA and developing our software to integrate with SIDES for over a year.  We expect to begin implementing SIDES by this fall, as most state UI agencies become operational.  There is no action to be taken on your part, as the interface is between Thomas & Thorngren, Inc. and the state UI agencies.

By investing in the SIDES claim response system, we anticipate that our clients will gain the benefit of additional lead time, which will support our combined efforts to secure favorable outcomes and to avoid unnecessary appeals.

Additional SIDES capabilities are being developed.  It is probable that in the future there will be applications relating to appeals decisions, benefit chargebacks, and earnings verifications.

If you have any questions or concerns relating to SIDES please do not hesitate to contact Gwen Benson at 615/242-8246 or gbenson@tntnash.com.

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Uncle Sam can be very harsh on employers in a state that is delinquent.  The net FUTA tax rate for Kentucky employers would have soared from 0.90% to 6.00% (an increase of $357 per full-time worker) had there been no legislative solution.

HB 495, which was signed by Governor Beshear on April 11, establishes a plan to avoid the potential $600 million tax increase by authorizing the state to obtain private financing to pay the interest.  Secondly, the bill authorizes a surcharge to be added to employer UI taxes beginning in 2014.  Proceeds from the surcharge are to be pledged as security for the private financing.

All tax-paying (contributing) employers in Kentucky will be assessed a surcharge of 0.22% of taxable payroll in 2014, using a $9,600 taxable wage base for that year, equal to $21.12 per full-time worker.  The surcharge rate will be adjusted each year after 2014 to compensate for changes in the UI taxable wage base.  As the taxable wage base increases, the surcharge rate will be adjusted downward.

This strategy allows Kentucky to pay the interest due for 2012 and 2013, funded by private sources, with no immediate impact on employer taxes.  All obligations involving the federal interest (including the costs associated with the private funding) will eventually be paid from the state’s unemployment compensation administration fund, which will include the proceeds from the surcharges.

Of course there is still execution risk. The bill authorizes the state to obtain private financing, but this still must be accomplished before the September 30 deadline.

Unfortunately the surcharge will not be credited to employers’ reserve accounts and will not be taken into consideration in UI tax rate calculations.

As of April 12 Kentucky’s outstanding Title XII loan balance is $955,079,155.20.  We anticipate that a loan balance will exist for several years, so the surcharge will exist for several years as well.

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

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Rebranding of Unemployment Compensation

HB 2027 rebrands the state’s unemployment compensation system as the “Reemployment Assistance Program”.  Additionally, the “Florida Agency for Workforce Innovation” will change to the “Florida Department of Economic Opportunity”.  Other changes include “Unemployment Compensation Law” to “Reemployment Assistance Program Law” and “Unemployment Appeals Commission” to “Reemployment Assistance Appeals Commission”. 

Initial Skills Review

After a claimant’s eligibility to receive unemployment benefits has been established, he or she must take part in an initial skills review administered by the Florida Department of Economic Opportunity.  The review contains three required sections: applied mathematics, reading for information, and locating information.  Test scores measure skill level by dividing each section into three proficiency levels, ranging from a minimum of 3 to a maximum of 5.  This review demonstrates a minimum proficiency in workforce skills for each claimant.  This requirement does not apply to an individual who is unable to complete the review due to illiteracy or a language impediment, or who is exempt from the work registration requirement.

HB 7027 provides that any claimant who fails to meet the standard score will be encouraged to participate in an optional skills training program.  Such training will be provided at no cost to the individual and will focus on improving a claimant’s workforce skills.  However, HB 7027 does not require the claimant to meet the minimum proficiency standards nor does it obligate the claimant to attend the optional skill training program to qualify to receive unemployment benefits. 

Professional Employer Organizations

The Department of Business and Professional Regulation defines an employee leasing company, or PEO, as “a business entity engaged in an arrangement whereby the entity assigns its employees to a client and allocates the direction of and control over the leased employees between the PEO and the client.”  PEOs provide various services for their client companies, such as handling the filing of UI taxes.  Under current law, a PEO is required to report leased employees under the tax account of the PEO.

HB 7027 allows a PEO to make a one-time irrevocable election to calculate, report, and pay state UI taxes under the respective unemployment account of each client.  The election to use the client option would apply to all current and future clients of the PEO and would apply to any UI taxes owed on or after January 1, 2013.  All existing PEOs are required to notify the Florida Department of Revenue of its election no later than July 1, 2012.   

Disaster Relief

Under current law, employer UI tax accounts are only eligible to receive non-charges for disasters declared under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.  HB 7027 authorizes the Florida Department of Economic Opportunity to provide a non-charge to employer’s UI tax accounts that are forced to lay off workers due to a disaster of national significance (such as an oil spill) that is not a declared natural disaster.

Fraudulent Claims

Currently, a claimant may be disqualified for filing a fraudulent claim for up to one year from the date of discovery.  However, this legislation states that the disqualification may continue beyond this until any fraudulent overpayments made to the claimant are repaid in full.

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

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The most welcome feature of SB 32 is the retroactive decrease in UI tax rates for 2012 from the initial calculation sent to employers earlier this year. The new law moves the UI tax rate schedule from Schedule 3 to Schedule 1 for 2012, resulting in lower rates.  For example, if your originally assigned 2012 UI tax rate under Schedule 3 was 1.80%, your revised UI tax rate under Schedule 1 will be 0.60%.  The New Mexico Department of Workforce Solutions will be issuing revised 2012 UI tax rate notices to all New Mexico employers prior to March 31, 2012 notifying them of their new rate.

Although this measure will lower tax burdens for employers in the short term, it increases the likelihood of higher tax rates in 2013.  To date, the current UI trust fund is at $79.5 million.  With Schedule 3 in effect for 2012, the trust fund was projected to increase to $141 million by the end of the year.  However, by shifting to Schedule 1, the trust fund is now projected to decrease to $59.6 million.  The decrease in the trust fund balance could cause further legislation to be enacted requiring a transfer of funds from the general fund or a short term financing mechanism to avoid depletion of the UI trust fund and prevent borrowing from the federal government. 

For 2013, SB 32 raises tax rates to Schedule 2, which would cause the trust fund balance to continue to fall to an estimated $41.3 million.  However, this legislation allows the Secretary of Workforce Solutions Department to raise rates to Schedule 3 for 2013 if the total assets of the UI trust fund are less than or equal to 30% of the total amount of benefits paid in calendar year 2011.  With Schedule 3 in place for 2013, the UI trust fund is projected to increase to $103.6 million.

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

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EUC (EMERGENCY UNEMPLOYMENT COMPENSATION BENEFITS) CONTINUE THROUGH 2012.  The maximum possible number of weeks of unemployment benefits (all programs combined) is reduced from 99 weeks to 79 weeks in June and 73 weeks in September.  This extension does not directly affect your state UI tax rates.  However, it may influence some claimants to continue receiving regular UI benefits, which must be exhausted before receiving EUC, rather than earnestly searching for work.  To the extent this occurs, the EUC program increases your regular UI benefit charges, driving tax rates higher.

100% FEDERAL FUNDING OF EXTENDED BENEFIT PROGRAM THROUGH 2012.  Don’t confuse this with the EUC program, which is temporary.  The Extended Benefit Program (“EB”) is permanent, and it provides up to 13 weeks or 20 weeks of benefits, depending on the state, when an extended benefit period is in effect. Normally EB benefits are 50% funded by the federal government and 50% funded from state UI trust funds (thereby impacting on your state UI tax rate).  The temporary provision to relieve the state trust funds, and employers, of this funding obligation has been extended through 2012.  This will have a favorable impact on UI tax rates for 2013 and future years.

DRUG TESTING.  Prior to this legislation there was a ban on state UI agencies screening and testing UI applicants for illegal drugs. H.R. 3630 permits states to screen UI applicants who either (1) lost their job because of drug use, or (2) are seeking a job that generally requires a drug test.  The extent of such drug screening may possibly be significant.  According to a 2006 survey by the Society for Human Resource Management, 84% of employers required new hires to pass drug screenings.  It remains to be seen whether the drug screening provision will be interpreted broadly or narrowly.

JOB SEARCH.  For the first time, H.R. 3630 creates national job search requirements for everybody collecting state and/or federal UI benefits, from the first through the last week of benefits.

PROMOTING REEMPLOYMENT.  The bill allows up to ten states to apply to the Secretary of Labor to conduct demonstration projects promoting reemployment of individuals who are receiving UI benefits.  The approved states will be permitted to divert UI funds for use in such programs.  One prototype is the Georgia Works program.  Although Georgia Works is not specifically mentioned in HR 3630, it clearly has captured the interest of the Obama administration.  This type of program allows a person to continue receiving UI benefits for a few weeks (eight weeks in the case of the Georgia program) while trying a new job, and it augments the unemployment benefits with a small stipend (up to $240).  The employer has the opportunity to train an unemployed person and evaluate his/her capabilities without paying wages during the training period.  There is no obligation to hire the worker when the training period ends. 

FLEXIBILITY TO REDUCE UI BENEFITS.  Prior to this bill, a state was not permitted to pay federal extended benefits if regular UI benefits were reduced.  This forced states that wanted to improve solvency to do so by raising taxes and blocked any balanced approach that also involved reducing benefits.  States may now consider reducing UI benefit eligibility without losing the opportunity to pay federal extended benefits when they are available.

SHORT TIME COMPENSATION.  States are incentivized to make greater use of short time compensation (“STC”) programs, otherwise known as shared work programs.  Twenty-three states currently have such programs available but they have received little attention. These programs are voluntary on the part of employers. STC programs are an alternative to entirely eliminating job positions and losing a trained workforce.  When such a program is in place, an employee works a reduced number of hours but receives a pro rata portion of his/her unemployment benefits to partially compensate for the loss of wages.  Without such a program, if a person’s work week is reduced from five days to four days (as an example) the person would normally not be entitled to any UI benefits.  His/her wages would still exceed the weekly benefit amount, in which case benefits would be disallowed. 

An STC program can promote stability by making it possible for skilled, experienced employees to stay on the job rather than being layed off or forced to  find a job elsewhere (possibly with a competitor) because of a severe reduction in earnings.  The downside has always been that the employer’s unemployment benefit charges increase, which impacts on future tax rates.

This bill allows states with short-time compensation programs to receive federal financing for 100% of the UI benefits paid under such plans for up to three years.  Presumably, there should be no charge to participating employers’ UI tax accounts during this time.

Grants are made available by this legislation to states without an STC program to encourage the adoption of such a program.  Further, such states may enter into an agreement with the U.S. Department of Labor to pay STC benefits until such time as state STC legislation is enacted.  In such states an employer who enters into an STC agreement must pay one-half of the benefits paid under the plan.  This option is available for up to two years, or until the state enacts an approved STC plan.

The U.S. Department of Labor will be providing guidance to the state unemployment agencies regarding administration of these provisions.  As always, the devil is in the details.  If there are any questions please do not hesitate to contact us.

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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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