UI Forum (ADP Unemployment Group)

Third Quarter 2011

Short Term Employment—Impact on UI Costs

Employers ask many questions when assessing a job candidate. Most of the time, the information gathered enables you to make the right choice and the person hired becomes a welcome and productive addition to your organization. However, there are occasions when a worker turns out not to be a good fit and the relationship unfortunately must come to an end.

For unemployment cost management purposes, it is often best to terminate an individual as soon as you become aware that person is unable to effectively get the job done. When your company is the separating last employer, the reason for separation from your employ will determine a person's eligibility for unemployment insurance (UI) benefits. If a person was not violating a specific rule or policy, but was simply unable to do the job, they will generally be granted benefits. However, if you employed the individual for only a short period, their earnings likely will not yet fall into the "base period" – the quarters prior to the UI claim filing date that determine which employers will be liable for UI benefit costs. So, even if the former employee is eligible for benefits, your company will not likely be assessed any charges for benefits paid.

A number of states have relief of charge provisions if the person's earnings during a short period of employment do not meet a certain threshold. For instance, in Colorado an employer's account is not charged if the claimant earned less than $1,000.

Some states will relieve an employer of benefit charges if a person is separated within the probationary period. Many employers utilize a "probationary period" as part of their process for evaluating new hires, but for unemployment purposes this does not necessarily mean that each new hire must remain employed until that probationary period comes to an end. For example, in both Florida and Oklahoma, an employer's account is not charged if the claimant worked less than 90 days, was advised of the probationary period within seven days of hire, and separated due to poor performance and not misconduct.

States that have some type of non-charging provisions for short term or probationary employment situations include: Colorado, Connecticut, Florida, Georgia, Illinois, Kentucky, Maine, Minnesota, Missouri North Carolina, New Hampshire, Oklahoma, Rhode Island, South Dakota, Virginia, and Wisconsin.

Being familiar with how short term employment can impact your UI costs can help employers better administer hiring and separation policies. Your ADP Unemployment Group representative can navigate the complexities of the UI system and help protect you from unnecessary unemployment claim liability.

South Carolina Reduces Unemployment Benefit Weeks

South Carolina joins a growing number of states that are reducing the maximum number of weeks a claimant may receive unemployment insurance (UI) benefit payments. A recent law amendment decreased the maximum potential benefits from 26 to 20 weeks, as of June 14, 2011.

Michigan was the first state to reduce the maximum duration of unemployment insurance benefits for regular claims, when a bill was signed into law in March of this year lowering the number of weeks a claimant may collect UI from 26 weeks to 20 weeks, beginning January 2012. Missouri legislation soon followed in April, which reduces the maximum number of weeks of UI benefits from 26 to 20 for claims filed April 17, 2011 and after. Arkansas also passed legislation, effective July 27, 2011 to reduce the maximum benefit weeks from 26 to 25. Beginning January 2012, maximum benefit weeks in Illinois will drop from 26 to 25, and in Florida the maximum weeks will range from 12 to 23, depending on the state's unemployment rate.

The majority of states have had a 26-week maximum entitlement for regular UI benefits for many years. But, at a time when many state trust funds are depleted, the trend to reduce benefit weeks is seen as a way to better manage UI program costs and keep extension programs active and funded.

Additional law amendments enabled legislators to appropriate roughly $146 million to be deposited directly into South Carolina's UI trust fund. These funds will allow the agency to recalculate and reduce tax rates for all employers, retroactive to January 1, 2011. However, they will not be able to issue revised rate notices or credits for Q1 and Q2 until the dollars are actually deposited sometime after September 1, 2011. The agency also expects to be able to make a substantial payment towards the state's Title XII loan (a federal loan taken in order to continue paying UI benefits) to qualify for an exemption to the previously anticipated FUTA credit reduction for employers' 2011 federal unemployment taxes.

State Legislatures Adjourn and Congress' Summer Recess Approaches—U I Issues Remain

The slow economic recovery coupled with pending decisions on how federal and state legislators will fix the Unemployment Insurance (UI) Program solvency issues means many employers are unsure of how to effectively prepare for increasing costs. With many state legislatures having already concluded their sessions and Congress in summer recess, employers must focus on UI cost management best practices within their control while planning for legislative changes.

Prolonged unemployment and the lack of jobs continue to fuel a slower economic recovery than what experts had hoped for this year. Unemployment rates trended upwards throughout the second quarter of 2011, after reaching a low of 8.8% in March. The four week moving average of new claims – an indicator of economic recovery – was 424,750 for the week ending July 2, 2011, compared to 386,750 on March 5, 2011.

Restoring federal and state UI trust fund solvency involves repaying Title XII loan balances and increasing taxes, so contributions can outpace outflows associated with benefits payments. As an example, Missouri is projected to carry a Title XII loan balance until 2016, and benefit payments are expected to be higher than contributions until 2015.

Currently, 30 states have insolvent trust funds. The weighted, average projected state UI tax increase is 16.5%. Adequate forward funding of UI trust accounts is essential to resolving today's UI program issues and anticipating the needs to carry through the next recession.

Earlier this year, the Obama Administration unveiled its budget proposal to include a two-year waiver on Title XII loan interest, suspension of the FUTA credit reduction for 2011 and 2012, an increase in the FUTA taxable wage base in 2014, and extension of the 0.2% FUTA surtax for three years.

The JOBS Act of 2011 was also introduced, which would allow states to decide whether to continue paying federal and state UI extensions after July 1, 2011, or put those funds towards Title XII loan balances and interest, the FUTA credit reductions, or job training programs.

Neither of these proposals has seen much movement so they are unlikely to pass. Instead, there may be renewed emphasis on expanding Work Share programs nationwide, as well as an emphasis on UI Integrity (reducing improper UI payments and fraud), especially through the new electronic data exchange initiative known as SIDES.

Some good news for employers is that after eight extensions spanning 35 years, the "temporary" 0.2% FUTA surtax expired as of June 30, 2011. Employers will save employers $14 per employee for a projected total of $1.4 billion annually in federal UI taxes. This will likely cause some reporting challenges when federal tax reports for 2011 are filed, since the surtax tax was in place for the first half the year then eliminated for the second half. And, many wonder if the surtax will be reinstated down the road, given that federal UI accounts are depleted. For now, though, this bit of tax relief is seen as a positive incentive for business to invest in job creation.

With federal proposals stalled, states may be forced to seek legislative solutions to UI issues in 2012. Already, states are taking unique approaches to increase revenues and providing tax relief to employers. For example, South Carolina applied $146 million in revenue to its UI trust fund balance in order to reduce employer's rates retroactive to January 1, 2011. The state expects to repay Title XII loans to avoid subjecting employers to FUTA credit reductions in 2011. Rhode Island modified its statutes to make wage base equal to 46.5% of average wage, which will result in an estimated $600-$800 increase from its current $19,000 taxable wage base. Also, an additional $1,500 will be added to the taxable wage base for max-rated employers.

Since there is much federal and state scrutiny over improperly paid unemployment benefits, today good claims management is the crux of UI cost control best practices. Employers can "win a claim before it's even filed" by having clear, consistent, uniformly enforced policies. An organized, well-documented record of the separation, especially the final incident, regardless of whether it is a voluntary quit or a discharge, is also key. Providing timely, accurate, and complete information at the beginning of the claim process will help eliminate unnecessary benefits charges in the end.

UI financing reform will undoubtedly mean higher costs—if not immediately, then over the next several years. Employers should budget for Title XII loan interest assessments and FUTA credit reductions.

The post-recessionary period is one of uncertainty. As federal and state legislators consider measures to boost UI program solvency and efficiency, employers must stay focused on effective unemployment cost management through proper planning and best practices.

State Updates

The maximum weekly benefit amount, as of July 1, 2011, increased from $451 to $457 and the minimum increased from $81 to $82.

In addition, per Arkansas Public Law 1229, effective July 27, 2011, the response time deadline for the last employer notice (ARK 501) increased from seven to ten days. The postmark governs timeliness. Faxed responses are accepted anytime of the deadline day.

The maximum weekly unemployment benefit amount increased from $445 to $454, as of July 1, 2011. The minimum amount remains $25.

Recently-enacted legislation makes the following changes regarding UI benefits and eligibility.

  • Unemployed persons filing a claim on or after July 1, 2011, will not be eligible for benefits if:
    • they work on-call or on an as-needed basis and have been offered work for the week being claimed
    • they are employed at a company during a planned, short-term shutdown
    • they are employees of a Head Start program who are on summer vacation or some other planned break
    • or they fail or refuse a drug test given by the employer as a condition of hire.
  • A planned, short-term shutdown is defined as an employer-mandated vacation period without pay, and workers must be given six months advance notice or advised at the time of hire. Regarding the failed/refused drug test amendment, the UI agency will rule this as a work refusal.
  • Distributions from pension, retirement, or annuity plans will not be considered "deductible income" from unemployment benefits, as of July 1, 2011.
  • Beginning October 1, 2011, severance pay will be deducted from weekly unemployment insurance benefits. In addition, workers who accept a voluntary buyout to resign or retire will not be eligible for benefits.
  • Effective January 1, 2012, claimants may choose to have state and local taxes withheld from their weekly unemployment benefits. Additionally, for claims filed on or after July 1, 2012, the benefit amount will be calculated based on a claimant's annual income; however, the maximum weekly benefit amount will remain $390.

Additional information can be found at http://www.in.gov/dwd/ under "Latest Headlines and Events."

Due to a recent Court of Appeals decision, the UI agency is changing how it determines "timely" claim responses and filed appeals. It has been the agency's practice to use the postmark as the governing standard of timeliness; however, there is no authorizing law and regulation to support this practice. Because of the Court of Appeals decision, which said time limits must be strictly construed, the UI agency must now receive documents within their specified time limit. They will no longer accept a postmark as the timeliness standard.

New Jersey
Form BC-10, Instructions for Claiming Unemployment Benefits, is being revised, due to recent legislative changes regarding its use. Currently, form BC-10 does not provide the worker detailed information about the time sensitivity for filing a claim for unemployment benefits. The amended form must include, but is not limited to, the following information:

  • the date upon which the worker becomes unemployed and if the unemployment is temporary, the date upon which the worker is recalled to work
  • that the individual may lose some or all of the benefit to which he/she is entitled if he/she fails to file a claim in a timely manner

Employers are required to complete a BC-10 and give it to any worker separated for any reason, be it permanent or temporary, under Section 6 (a) of the unemployment law. A copy of the form may be found at: http://lwd.dol.state.nj.us/labor/ui/content/forms_index.html

North Dakota
The maximum weekly unemployment benefit amount increased from $442 to $470, as of July 3, 2011. The minimum amount of $43 remains unchanged.

Oregon law was recently amended so the initial unemployment claim form may be directly mailed to the employer's authorized agent. The unemployment agency is formulating the administrative procedures for the change and target date for completion is summer's end. Historically, the initial claim notice had to be mailed to the employer because of statutory language regarding "giving written notice to the employing unit." Oregon was able to amend its laws because of impending system improvements known as SIDES (State Information Data Exchange System.) Direct mailing of the claim form to the ADP Unemployment Group will enhance service efficiency to our employer clients.

The law was recently amended so that Social Security payments no longer reduce a claimant's weekly unemployment benefit amount. Previously, benefits were reduced by 50%.

The maximum weekly unemployment benefit amount increased from $570 to $583, as of July 3, 2011. The minimum amount increased from $135 to $138.

The maximum weekly unemployment benefit amount increased from $430 to $444, as of July 1, 2011. The minimum amount increased from $31 to $32.

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