On February 24, 2011 Governor Mitch Daniels signed into law Enrolled House Act 1450 making several changes to unemployment insurance in an attempt to bring the Indiana UI trust fund back to solvency in two years.
The most welcome feature of EHA 1450 is the retroactive decrease in UI tax rates for 2011 from the initial calculation sent to employers earlier this year. The new law moves the UI tax rate schedule from Schedule B to Schedule E through the year 2020, resulting in lower rates. For example, if your originally assigned 2011 UI tax rate under Schedule B was 3.20%, your revised UI tax rate under Schedule E will be 2.50%. The Indiana Department of Workforce Development will be issuing revised 2011 UI tax rate notices to all Indiana employers prior to March 31, 2011 notifying them of their new rate.
Due to recent economic conditions and a large volume of UI benefit claims that have resulted in the depletion of the Indiana UI trust fund, the Indiana Department of Workforce Development has borrowed funds from the federal government in excess of $2 billion to pay UI benefits. Since the loans will not be repaid by January 1, 2012, the state will be required to pay interest on the borrowed funds pursuant to federal guidelines. President Obama’s federal budget proposal for fiscal year 2012 includes a provision that would eliminate interest payments for UI loans for calendar years 2011 and 2012, but this proposal has not been enacted and may not be enacted.
In anticipation that interest on the federal loan will be payable, EHA 1450 imposes an employer surcharge in order to generate funds to pay such interest. The surcharge for 2011 is 13% of the assigned tax rate, using the revised (lower) assigned rates. The surcharge will be included on the revised 2011 UI tax rate notice mailed to each employer. For example, if your revised 2011 UI tax rate is 0.50%, the surcharge will be 0.065% (0.50% x 13%) making a total tax rate for 2011 of 0.565%.
The net impact of these changes will be a tax decrease for experience-rated employers in 2011. However, there is a hidden cost to the surcharge. A portion of tax payments attributable to the surcharge will not be credited to your reserve account which will cause future tax rates to trend somewhat higher.
In addition to changes in UI taxes, there have been significant changes to UI benefits as well. Below are a few noteworthy examples:
Eligibility
The following individuals who become unemployed on or after July 1, 2011 will not be eligible for benefits:
• People who work on an on-call or as-needed basis (when they are offered work for the week)
• Workers employed at a business during a planned short-term shutdown
• Employees of head start programs who are on planned breaks such as summer vacation.
Severance Pay
Beginning October 1, 2011, the amount received in severance pay will be deducted from unemployment insurance benefits. For example, if a claimant is eligible for $300 a week in UI benefits and receives $200 a week in severance pay, the severance pay will be deducted from the claimant’s weekly UI benefit. The claimant will collect $200 in severance pay and $100 in UI benefits.
Pension, Retirement, Annuity Distributions
Beginning July 1, 2011, distributions from pension, retirement or annuity plans will not be counted as “deductible income”.
Voluntary Buyout
On or after October 1, 2011, employees who accept a voluntary buyout to resign or retire are no longer eligible for unemployment insurance.
Benefit Calculation
New claims filed on or after July 1, 2012 will be calculated based on the claimant’s annual income. The maximum weekly benefit amount will remain $390.
As always, if there are any questions, please feel free to contact us at (615) 242-8246.