Situation

Michigan employers with a positive account balance, who were subject to the FUTA tax increase of 0.3% in 2009, can receive a tax credit for 2010. The credit amount will be either 50% of the additional FUTA tax paid by the employer or the employer’s taxable wages for the previous calendar year multiplied by the non-chargeable benefits component (NBC) of the employer’s unemployment tax rate for that year, whichever is the lesser amount.

What Employers Need to Know

To qualify for this credit employers must meet all the following requirements:

Employers can apply for this credit through the UIA Employer Web Account Manager (EWAM) at www.michigan.gov/uia or by completing Form UIA 1110, "Application for Michigan Unemployment Tax Credit". Both application options will be available soon. The credit can be used against your Michigan unemployment liability beginning in the quarter ending 6/30/2010.

Tammy Mullin

The IRS has issued frequently asked questions and answers to the payroll tax exemption HIRE Act. The questions are divided into three categories:  

· Payroll Exemption and Qualified Employer

· Qualified Employee

· Claiming the Payroll Exemption

The IRS has also provided payroll exemption references and related topics. TALX will monitor the IRS as they continue to provide additional guidance on the HIRE Act.

Angela Lockman

The New York Times published an article about TALX on April 4, 2010. Many of the points within the article were inaccurate.  As a result, readers may have drawn conclusions that are not fact-based. TALX stands by our outstanding employees and expertise as well as the important role that we play in the unemployment insurance industry. 

The unemployment insurance system is run and administered by states though it is funded by employers.  This system, by law, provides unemployment benefits in certain circumstances for the under-employed and unemployed workers.  This includes lack of work issues. 

When a former employee believes he/she is eligible to collect unemployment insurance, that individual goes to the state to file a claim.  The state then processes that claim and then sends it to the former employer to see if the reasons for separation supplied by the individual and the employer are in agreement.  There is agreement with the majority of claims and benefits are subsequently granted by the state.  However, in some cases, there is disagreement.  When that occurs, the states may collect more detailed information from the employer and the individual to make a determination on his or her eligibility. 

TALX is fully committed to aiding the communications process between states and the employers we serve in order to help ensure individuals get the unemployment benefits they deserve.  TALX handles millions of claims accurately and efficiently every year, which benefits consumers, employers and states.  Our State Agency Response Team leads the industry in providing service to each state. 

Our process helps protect the individuals for whom the unemployment insurance system is designed to assist.  Despite what The New York Times article reported, TALX participates in the process but does not make judgments regarding benefits.

We invite you to direct your questions to the TALX hotline 314-684-2599.

In 2009, there were approximately 29.3 million unemployment claims filed in the US.  A source within the Department of Labor tells us that nationally, in 94% of the cases, benefit eligibility was determined at this initial claim level and no appeals were filed.  Of the 6% that were appealed and went to a hearing, claimants filed for appeal three times more often than employers did. 

So who wins?  Interestingly enough, regardless of whether it was the claimant who filed the appeal or the employer who filed the appeal the win % is generally 36% in favor of the appellant with claimants having slightly more success. 

These trends haven’t changed much over the past 5 years.  The appeal rate has gone up slightly and the % of the appeals by claimants has increased slightly while those filed by employers has decreased slightly.  Not an unexpected outcome given the current economic climate.

So what does this mean to you the employer?  Well, the unemployment system was established to help employees who lose their jobs through no fault of their own.  As an employer, you should continue to appeal decisions where you feel your former employee should not be eligible for benefits.  However, since the majority of people filing a claim for unemployment are eligible to collect, employers can have a greater impact on controlling their unemployment costs by helping to control the duration of an unemployment claim.  The best way to do that is to provide former workers with the tools and assistance they need to get back to work more quickly.  

Whether you choose to use an outside resource such as the TALX Reemployment Service or do it yourself in-house, having a Reemployment Strategy for former workers is an essential part of any Unemployment Cost Management program.  The right strategy can get former workers back to work 33% faster than those that are provided no assistance at all.

Tammy Mullin

I-9/E-Verify

By: Dave Fowler

In December 2009 the E-Verify Photo Tool was released to E-Verify Designated Agents (DAs) using the E-Verify web site. Many DAs, including TALX, provide an electronic I-9 service that communicates with E-Verify using a sedure computer-to-computer connection referred to as the E-Verify Web Services Interface. E-Verify supports several versions of this interface. The current release is version 20 (v20) and it supports the Photo Tool. DAs recently received instructions to upgrade to v19 by July 23. While v19 supports some of the Photo Tool data fields, it does not provide all the necessary functionality needed for DAs to support the Photo Tool in their electronic I-9 services. DAs have not received notification from DHS regarding when v20 must be implemented.

The lack of v20 notification is a good thing at this time since many DAs and employers are working through supporing and complying with the Federal Acquisition Regulation (FAR rule) that requires Federal contractors with covered contracts to verify new and existing employees with E-Verify. The other reason this is good news is that later in 2010 (perhaps in the fall) another Photo Tool update (v21?) will probably be released to add U.S. passport photos. Currently, the Photo Tool only provides photos when an employee presents a EAD card or a LPR card to complete the Form I-9. By delaying the requirement for DAs to upgrade to v20, employers will only have to train hiring managers one time on the use of the Photo Tool. If DAs were required to upgrade to v20 and then 6 months later to v21 (if that is the version that supports passport photos), employers would be required to train hiring managers twice on the Photo Tool. This would most likley increase confusion, result in noncompliant practices that increase risk, and additional employer costs. It would be better for those employers hiring seasonal workers this fall to not be burdened with implementing a new E-Verify feature such as the Photo Tool.

After the release of v21 there will likely be another release (v22?) that will be the first installment of updates as part of the plain language initiative. This project is to make the language of E-Verify more understandable to users of the service. The first release will change such technical terms as Tentative Nonconfirmation so they are clearer and describe the actions the hiring manager and employee must take to resolve the issue.

Again, it is good for employers for the release of v22 to be delayed until after the seasonal hiring season is over so hiring managers and employees don't have to be taking training and learning new terms during a peak hiring season.

Kansas

In the state of Kansas Governor Parkinson recently signed House Bill 2676 that lowered unemployment insurance tax rates and provided additional time to submit their tax contribution payment.

Indiana

In the state of Indiana; Governor Mitch Daniels recently signed Senate Bill 23 that postpones scheduled unemployment tax changes to take effect on January 1, 2011, rather than January 1, 2010.

What Employers Need to Know

Kansas

Kansas HB 2676 sets tax rates for 2010 and 2011. The Kansas agency immediately mailed revised 2010 rate notices to the employers impacted by the bill which was signed by Governor Parkinson on March 24, 2010.

In addition, all employers are given an additional 90 days in which to make their contribution payments for the first three quarters of 2010 and 2011 without accruing interest. However if the payments are not made within that 90-day window, interest will be assessed from the original due date.

The 90-day grace period provided to all employers does not apply to submission of the quarterly wage report, only to the payment of UI tax contributions. Quarterly wage reports are still due the last day of the month following quarter end. Reports submitted past the due date are subject to a penalty.

Indiana

Indiana SB 23 postpones from January 1, 2010 to January 1, 2011 the increase in the taxable wage base from $7,000 to $9,500. In addition, it postpones the increase in the maximum rate from 5.6% to 12.0% and decreases the rate for certain employers, from 2.7% to 2.5%. Changes to the fund ratio and rate schedules were also delayed to take effect in 2011 rather than in 2010.

Tammy Mullin

Part 3 – Major Program Changes

The latter half of the 20th century saw significant changes occur in the unemployment insurance (UI) program. It began in 1953 when the law was amended to impose liability on an employer who employed eight or more workers during 20 different weeks in a calendar year, or, who paid wages in excess of $12,000 in any quarter of the year. This was the first time a payroll factor was used to determine employer liability.

Coverage requirements for employers were again changed in 1956. The number of employees needed to establish a company liable for UI tax was dropped from eight down to four or more during 20 different weeks in a calendar year. At the same time, the payroll factor dropped from $12,000 down to $6,000 per quarter. Coverage requirements then remained basically unchanged for the next 16 years.

In 1972 employer liability provisions were extended to employers who had 1 or more employees performing services for them in 20 different weeks of a calendar year or had a payroll in any quarter of $1500. In addition, the FUTA taxable wage base increased from the first $3000 to $4200.

Also during 1972, coverage was extended to workers in state government and non-profit organizations. 1974 saw the inclusion of city and county government workers and additional changes occurred in 1978 when employees of large agricultural firms, domestic employers and schools below the level of college were provided UI coverage. The wage base was again increased in 1978 from $4200 to $6000. Then, in 1983, the taxable wage base became $7000 and remains at that level today. Stay tuned: I believe the FUTA taxable wage base will be substantially increased within the next year.

Below is a convenient chart that shows the changes that have occurred over the years in the FUTA taxable wage base and tax rate:

FEDERAL UNEMPLOYMENT TAX ACT

TAXABLE WAGE BASE AND RATE  

Rett Hensley
TALX Strategic Consultant

The attached Tax Intelligence details a recent Court ruling regarding severance pay and FICA. In a controversial decision, a sixth circuit District Court held that certain severance payments made outside a qualified supplemental unemployment benefits (SUB) plan were not subject to FICA tax since the severance payments were not earnings.

Please review the attached for further details, including a possible option which might be advisable to preserve the right to a refund in the future when the case is finally resolved.

This communication was sent to our clients on March 23.

Part 2 – The Early Years

On August 14, 2010, the Federal/State Unemployment Program will be Seventy-5 years old. I began working for the Florida Industrial Commission, Bureau of Unemployment Compensation, on January 5, 1970 (40 years ago). At that time, I was trained and supervised by individuals who were reaching the end of their careers in the unemployment program. These great pioneers set the program up from scratch after it was established by the Florida legislature in 1937, signed into law by Governor Fred P. Cone on June 9, 1937, and approved by the Social Security Board as meeting all Federal requirements on June 24, 1937. It began in a small office space above a drug store in downtown Tallahassee, Fl, with three employees. By August it had grown to 27 employees.

Newspapers around 1937 gave you a glimpse at the economy of the day. For instance, employment as a bartender was advertised at a salary of $7 per week. You could buy a six room home for $3,000, a new truck for $395, and a pot roast sold for 15 cents a pound. The initial unemployment weekly benefit amount was $15, which offered real hope for financial survival at the time.

These early years were completely devoted to getting the program up and running. Every state had to begin by locating and establishing employer’s who were considered liable for the payment of unemployment tax. Of course, this coming at a time when employers were struggling to make ends meet as a result of the Great Depression.

The original program covered workers who were employed by companies that had 8 employees on the payroll during 20 different weeks in a calendar year. It did not, however, provide unemployment coverage for large groups of workers. For instance, workers performing services in agriculture, non-profit organizations, domestic service and government work, were not covered for unemployment purposes and the employers were not liable for unemployment taxes. The Act also did not cover workers over the age of 65. The first tax and wage reports were collected from liable employers on a monthly basis, however, by 1938 states were moving to the quarterly report process that is still in use today.

Other major changes began to occur in 1939. The first being the removal of railroad workers from the Federal/State Unemployment Program due to the passage of the Railroad Unemployment Insurance Act which established a program solely for railroad workers. Around 1941 states were beginning to see a need to investigate unemployment fraud and employer audit programs began springing up around 1949. The original intent of the field audit program was to audit every employer once every four years. Never happened, and never will!

A lot of changes occurred from the 1950’s through the 1970’s. I’ll discuss them next week along with a history of FUTA tax rates.

Rett Hensley
TALX Strategic Consultant

In response to the severe recessionary economic conditions, several states either passed legislative changes in 2009 or had statutory provisions in place that resulted in significant state unemployment (SUI) tax increases for 2010. The extreme rise in unemployment taxes is expected to continue for the next several years as states work to replenish their trust funds. The Congressional Budget Office (CBO) estimates that taxes will increase from $38 billion in 2009 to $75 billion by 2013 and range from $78 - $84 billion through 2020.

The cost of high unemployment state taxes will be compounded by higher federal unemployment taxes as states struggle to repay their Title XII Loans. The states must repay the loans as well as interest on the monies borrowed.

To date, thirty two (32) state unemployment trust funds are broke and have borrowed over $32 billion from the federal government. The USDOL estimates that forty (40) states will become insolvent and borrow a total of $90 billion as a result of this recession.

There is tremendous pressure for the states to address the repayment of the federal loans as well as bringing solvency to their state trust funds, through higher unemployment taxes. On the flip side, there is unprecedented pressure from the employer community to reduce the unemployment tax burden.

As of this writing, both Florida and Massachusetts have enacted legislation to lessen or defer the significant tax increases their employers were experiencing in 2010. Hawaii, Indiana, Kansas and Maryland have similar legislation pending.

With the landscape continuously changing it will be critical for employers to stay abreast of the developments and factor them into their budget projections.