Credit Reductions Persist, Lower Benefits Could Lessen Rates

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By Howard Perlman

Reductions in the credit that employers can apply to their federal unemployment tax rate are to again be in effect for 2015 for employers in some states, a federal unemployment official said June 17.

If a state that possessed a loan balance from the federal unemployment account on Jan. 1 of multiple consecutive years, including 2015, has a loan balance on Nov. 10, 2015, employers in the state generally would experience a Federal Unemployment Tax Act credit reduction for this year, said Gay Gilbert, administrator of the federal Labor Department’s Office of Unemployment Insurance.

States can enable employers operating within them to avoid all or part of a FUTA credit reduction that otherwise would apply if they fulfill requirements for relief from the reduction, which often are difficult to fulfill, Gilbert said at the National UI Issues Conference in San Diego.

Gilbert said FUTA credit reductions could be in effect for 2015 for employers in these jurisdictions if they have a loan balance from the federal unemployment account on Nov. 10: California, Connecticut, Indiana, Kentucky, New York, North Carolina, Ohio, South Carolina and the U.S. Virgin Islands.

Employers in New York, North Carolina and South Carolina are unlikely to have a FUTA credit reduction for 2015 because these states repaid their unemployment loans. Kentucky, which has a federal unemployment loan balance of $22.2 million as of June 23, is expected to repay its balance to avoid a credit reduction for 2015.

Projected Reductions for 2015

California, Connecticut, Ohio and the U.S. Virgin Islands are to have a general FUTA credit reduction of 1.5 percent and Indiana is to have a general FUTA credit reduction of 1.8 percent, Gilbert said. A credit reduction of 1.5 percent can increase federal unemployment tax costs by up to $105 per employee, and a credit reduction of 1.8 percent can increase costs by up to $126 per employee.

For 2015, California employers also are to be assessed an additional type of credit reduction, a benefit cost-rate (BCR) add-on, of 1.4 percent; Connecticut, 0.7 percent; Indiana, 0.9 percent; Ohio, 1.2 percent; and the U.S. Virgin Islands, 1.6 percent. However, some of these jurisdictions might acquire relief from the BCR add-on, as for 2014, all jurisdictions that were to have a BCR add-on, except Connecticut, were granted relief by the federal Labor Department.

Many methods are available   for managing state unemployment tax rates through decreasing avoidable benefits charges.

If the projected BCR add-ons apply for 2015, they would cause employers in California to be required to pay additional federal unemployment tax costs of up to $98 for each employee; Connecticut, up to $49 for each employee; Indiana, up to $63 for each employee; Ohio, up to $84 for each employee; and the U.S. Virgin Islands, up to $112 for each employee.

Reduce Benefits to Lower Rates

Even though FUTA credit reductions, increases to state unemployment taxable wage bases and other factors could increase unemployment tax costs for employers for 2015, many methods are available for reducing avoidable unemployment benefit charges to employers' accounts, which can enable employers to eventually acquire lower state unemployment tax rates. In general, the more benefits a state charges to an employer's account, the higher the employer's unemployment tax rate assessed by that state could be.

The State Information Data Exchange System (SIDES) can be used by employers in almost every state to more promptly respond to benefits-eligibility information requests and reduce the number of incidents when benefits were improperly charged because of failure to timely respond, Joe Vitale, director of the Information Technology Support Center electronic unemployment initiative, said June 18 at the UI issues conference.

In addition to using SIDES, employers can examine summaries sent by states that detail benefit charges over a period to determine whether any listed charges are erroneous and worthy of protest. Among the factors that could cause a benefits summary to contain errors are improper appropriations of charges because of an incorrect employer identification number and duplication of charges, Lori Roberts, senior manager of government relations for Equifax Workforce Solutions, said June 18.

Employers that retain documents with details that enhance their justification in firing individuals who violated a company policy or committed misconduct not only can improve their likelihood of acquiring favorable initial determinations that such individuals are ineligible for benefits, but als can improve the likelihood that they will win appeals of initial benefits-eligibility determinations, Matt Kaufer, vice president of Barnett Associates Inc., said June 18.

Shared-work plans also can enable employers to reduce the benefits charged to their accounts by lowering the number of hours of work reduced because of downsizing for which wage-replacement benefits must be provided. The plans, which can be implemented in about half the states, involve reducing selected employees' hours by a percentage as an alternative to layoffs that would have involved a net loss of at least the same number of hours reduced under the plans, Rebecca Dixon, acting deputy program director of the National Employment Law Project, said June 19 at the conference.