Hire Now Tax Cut Act of 2010

Once again we are seeing congress take an active role in stimulating job growth and getting Americans back to work.  The Hire Now Tax Cut Act of 2010 was introduced February 3, 2010, by Utah Senator Orrin Hatch.  The bill will allow an employer to hire unemployed workers and not pay the employer’s share (6.2%) of the Social Security payroll tax for the remainder of 2010.  The payroll tax incentive would provide an immediate impact to hire employees now rather than waiting until 2011 for a tax credit. 

An additional incentive of $1,000 is available if the employer keeps the qualified employer on the payroll for a continuous 52 weeks.  If a worker is eligible for the Work Opportunity Tax Credit (WOTC), the employers must select one benefit or the other for 2010.

 “This is an affordable, effective and targeted proposal to get the American people back to work,” said Hatch.  “As a conservative, I appreciate that this proposal isn’t about more and more government spending; it’s about tax relief to get employers hiring again, which is exactly what millions of unemployed Americans most desperately need.”

The devil is always in the details and there are many to iron out as this bill works it way through Congress.  We will face similar issues that we had with the new WOTC stimulus categories this year, such as how will employers verify that an individual was unemployed.  There are also concerns by many that the slow economic recovery will not lead to higher payrolls in 2010 than in 2009.

Angela Lockman

Even while forced to layoff part of their workforce thereby reducing capacity, employers continue to foot the bill for rising unemployment costs.  They not only fund benefits for their own displaced workers, but also for workers of companies that have gone out of business.  On top of all of that, employment litigation rises during times of increased unemployment increasing the burden further on the employer. 

Employers need to properly prepare for a layoff situation paying particular attention to the selection criteria for individuals involved (see also TALX Blog "Preparing for a Layoff".) 

Tammy Mullin

The charges recorded to your unemployment account have a huge impact on your tax rate.  As noted in a previous blog "Unemployment Benefit Charge Auditing" you should be checking the charges for common charge errors and contesting those charges with the state within the specified time period. 

Thought it might be helpful to let you know the distribution schedule for charge statements by state as well as give you the time limit for contesting the charges.  Some times are very short so employers need to be on top of getting this done timely. 

Tammy Mullin

The "burden of proof" rests with the employer in cases involving a discharge. The employer must prove that the incident(s) which led to the former employee's discharge, amount to misconduct as defined by the applicable state statute. Misconduct can be established by the violation of a reasonable employer rule or expectation. The employer must show that the former employee's actions or omissions to act were willful and either actually harmed or had the real potential to have harmed the employer's business. Acts of inability, poor judgment, and good faith errors will generally not be sufficient to establish misconduct.

Witnesses should be prepared to provide the initial background information regarding the former employee's employment, describe the final incident that lead to the discharge, discuss prior disciplinary action and relevant company policy/procedure. Additionally, the witness must establish what impact or potential impact the former employee's action(s) had on the employer's business, i.e., monetary loss to the employer. Also, note that an isolated instance will generally be insufficient to establish misconduct. Verbal and written warnings that were given for the same reason as the discharge reason are important to show misconduct.

If the final incident is within the control of the employee or they could have prevented this final incident, then it is a case worthy of pursuing. However, if the final incident is beyond the employee's immediate control, then this may be a case which cannot be won. An example might be a discharge for tardiness - the final incident being when the employee's car broke down or they may have had to take their child to the hospital because of an emergency. These are situations the employee could not have prevented.

Tammy Mullin

When documenting reasons for separation there is the potential to mislabel certain performance issues as "unsatisfactory".  This could be perceived by the state to mean unable to perform and will likely result in benefits awarded to the claimant. State unemployment agencies put a specific meaning on the word "unsatisfactory." It is taken to mean "could not perform satisfactorily" or, in effect, "not qualified."

Unemployment benefits are designed to be paid to people out of work through no fault of their own. People who accept work with the good intentions of performing it, but who are incapable of performing up to company standards or who lack the training or experience to do so are paid unemployment when discharged for that reason.

The following is an excerpt from a hearing ruling detailing a definition of misconduct.

If a person is negligent, derelict in performing his/her duties, deliberately failing to follow procedures or take direction, while the word unsatisfactory may seem to apply, using it could lead the state agency into improperly thinking the person was discharged for inability to perform satisfactorily.

If you are discharging someone who you believe is qualified for the job (and/or who has demonstrated the ability to perform satisfactorily in the past) you should view it as a discharge "for cause" and avoid using the words "performance or "unsatisfactory."

If the reason is failure to follow known procedures, phrases like "deliberate failure to follow procedures" are appropriate. Negligence of duty can be labeled as such.

Documented and described properly, quite of few of these separations will lead to an appropriate disqualification from unemployment benefits. Improperly described and you may be paying unemployment benefits to someone who deliberately failed to perform the duties of the job.

One additional very important item, once you have clearly determined that an individual is simply not qualified for the job and unable to meet performance standards, from an unemployment standpoint, the individual should be let go as soon as possible since the longer they are employed, the higher your unemployment liability will be. Such reductions in liability, if significant enough, can actually either lower or protect you from increases in your unemployment taxes on all employees (or in the case of reimbursers, possibly eliminate the need for a direct reimbursement for benefit charges).

Tammy Mullin

TALX

We understand the uncertainty and difficulty our clients face when provisions lapse, so we are reviewing and monitoring the activity around the Tax Extender Act of 2009. On December 8, 2009, the tax extender bill, H.R. 4213 passed the house. The following incentives were included in the bill:

·         Empowerment Zones

·         Katrina WOTC

·         New Market Tax Credit

·         NY Liberty Zones

·         Renewal Communities

·         Tax Incentives for the District of Columbia

·         The Indian Employment Tax Credit

The Tax Extender Package is currently awaiting approval from the Senate. We are hopeful that the extender package will be extended retroactively and will be adopted by the end of the session.

Angela Lockman

The "burden of proof" rests with the former employee in cases involving a voluntary quit. The former employee must prove that he/she voluntarily quit with good cause as defined by the applicable state statutes in order to argue entitlement to unemployment benefits such as a substantial change in pay, working conditions, et cetera. Good cause is generally established when work-related conditions have substantially deteriorated or a situation exists that would force a reasonable person to leave his/her employment.

In these cases, the employer should be able to present facts where they have attempted to resolve the situation with the employee, i.e., alternatives that were available to the employee prior to the resignation.

Witnesses should be prepared to provide the initial background information regarding the former employee's employment, establish the reason(s) given for quitting, provide details of the events that caused the former employee to quit and, finally, state what attempts the former employee made to resolve the situation before quitting.

Tammy Mullin

Back in April 2009, I wrote a blog about the strings attached to federal stimulus funds, "Why are states rejecting Stimulus money?"  The strings are real and Maryland business leaders are speaking out against Maryland legislation to try to capture $127 million worth. 

The strings in the form of unemployment benefit expansions would cost Maryland businesses an additional $20 million every year into perpetuity which is way more than the $127 million they can get for short time relief against their rising unemployment trust fund balance. 

So this is a common discussion across states and certainly there are circumstances where it may be necessary to buy short term relief for future considerations, but what I find baffling in this case is that certain officials are "absolutely baffled" by why anyone would think this could be a problem. 

Trust me, there isn't much in life that you can get for free, and it sounds like Maryland businesses may not be thrilled about paying the price in this case.

Tammy Mullin

In December, 2009 TALX hosted a webcast detailing "The Great Recession of 2009"  We discussed the damage done and the steps to recover. If you were not able to attend the webcast, attached is the link so that you can listen to it now.

http://talxcorp.acrobat.com/etswebcastdec2009/ 

The U.S economy has been, and continues to be in a "Great Recession."  While many economists are now claiming that the economy has turned the corner and the recession is beginning to fade, the Total Unemployment Rate (TUR) is still hovering around 10%.   This is a normal occurrence when the country is recovering from a recessionary period.  However, the depth and length of this economic disaster is like no other in history with the exception of the Great Depression.

It has now been 26 months since the recession officially began in December of 2007.  By comparison, the worst recession in the previous 40 years (1981-1982) lasted only 16 months.  Job Losses are more than double the '81/'82 recession, UI Claims are at an all time high, and the duration of the average claim is around 26 weeks (the highest in recorded history).  But wait, it could very well get worse in 2010 before it starts to get better.

Insolvent States

All of this has taken a heavy toll on the Unemployment Trust Fund (UTF).  Thirty states have depleted their accounts in the UTF and are taking or currently requesting Title XII loans from the Federal Unemployment Account (FUA).  Below is a breakdown of state borrowing as of January 21, 2010:

Kansas, Massachusetts and New Hampshire have requested approval from the Secretary of Labor to take Title XII loans, but have yet to drawdown their first advance.  Twelve states have borrowed in excess of $1 billion, while NY, MI and PA are over $2 billion.  California leads the way with $6.7 billion.

Insolvent Federal Accounts

With almost $30 billion in Title XII loans being advanced to the states, the UTF Federal accounts were also depleted during 2009.  There are three Federal accounts in the UTF: 

1)  The Employment Security Administration Account (ESSA);

• This account receives 80% of the Federal Unemployment Tax (FUTA) collected by the Internal Revenue Service.
• Used to fund administration of state UI and ES programs.

2) The Extended Unemployment Compensation Account EUCA);

• Receives 20% of FUTA revenues
• Funds the Federal share of extended benefits and now the EUC08 emergency benefits 

3)  The Federal Unemployment Account. 

• Funds Title XII Advances to states that have depleted their state account

With the EUCA and FUA accounts both becoming insolvent during 2009, Congress passed HR 3357, and the President signed it into law, allowing the UTF to drawdown funds "as needed" from General Revenue to continue paying extended and emergency benefits and making interest free loans to states.  The UTF, however, is required to pay interest on these General Revenue loans at the same rate the Treasury pays on the National Debt, approximately three and three eighths per cent.  As of December 3, 2009, the UTF had already taken $18.9 billion in General Revenue loans.

Where to Now?

The US Dept. of Labor is now projecting that approximately 40 states will borrow up to $90 billion dollars before the end of 2012 and states are starting to wrestle with how this will be paid back and how long it will take.  Do they raise taxes?; Do they reduce benefits?; Do they wait for a Federal "bailout?" Different states are taking different approaches. 

The National Association of State Workforce Agencies (NASWA) recently conducted a survey of states regarding solvency issues.  The survey results indicated that approximately 24 states plan to increase their taxable wage base for 2010.  In 17 states (AK, HI, ID, IA, MN, MT, NV, NJ, NM, NC, ND, OK, OR, UT, VI, WA, WY) the taxable wage base is indexed and will happen automatically as a result.  The seven remaining states (AR, FL, IN, NH, TN, VT and WV) passed legislation to raise the taxable wage base.  However, at least two of those states, Fl and IN, are now working on legislation to postpone the implementation of the newly passed tax legislation in order to avoid increasing taxes on employers at a time when the economy is trying to recover.  A large increase in employment tax is feared to prolong the high unemployment rate as employers will continue not hiring or creating new jobs while trying to reduce costs and increase profits.  These states also site the possibility of a Federal Government bailout in the form of relief from repaying Title XII loans as justification for the delay.  My personal opinion is that this probably will not happen because the UTF is borrowing from General Revenue, with interest accruing. Who bails out the UTF and General Revenue Account?  The tax paying public!

The NASWA survey also concluded that 28 states will see an increase in their tax rate schedules in 2010.  While 10 states are already at the maximum rate schedule and would have to pass legislation to increase further, most of the states have automatic increases built in to the experience rating structure when trust fund balances are low.  If there is one thing you can count on, it is that most, if not all, states will see a UI tax increase in 2010.  The NASWA survey indicated these increases will range between 2.5% to 600%.

FUTA Increase?

According to UWC President, Doug Holmes, The House Ways and Means Committee is looking at the possibility of increasing the FUTA taxable wage base to address the large deficit in the Federal Accounts in the UTF.  In my opinion, an increase in the $7,000 FUTA taxable wage base is very likely within the next year and may even be indexed to create more flexibility to increase revenues during recessionary periods.  In addition, increasing the FUTA taxable wage base will require all states to approve a taxable wage base that is equal to, or greater than, the FUTA wage base, thus, improving the stability of state accounts in the process. 

Rett Hensley

Consultant