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Although many employers experienced unemployment cost increases because of Federal Unemployment Tax Act credit reductions in previous years, 2014 is the first year that employers in the majority of credit-reduction states may be required to pay an additional type of credit reduction, the benefit cost rate add-on.
This also is the first full year that states are required to enforce improper-charge nonrelief provisions under Section 252 of the Trade Adjustment Assistance Extension Act of 2011 (Pub. L. 112-40). Laws and rules implementing Section 252 require that employers generally may not be relieved of charges for unemployment benefits that were improperly paid because the employers or their agents did not timely or adequately respond to separation information requests or similar information requests regarding eligibility.
However, employers in more states than at the start of 2013 can implement shared-work plans to help reduce costs, and some states are considering legislation in 2014 to allow plan implementation.
Employers in 12 of the 13 states that had FUTA credit reductions for 2013 may be assessed the benefit cost rate add-on credit reduction for 2014 in addition to the credit reductions that otherwise would apply because Jan. 1, 2014, was at least the fifth consecutive Jan. 1 when these states had loan balances from the federal unemployment account. The states include Arkansas, California, Connecticut, Georgia, Indiana, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island and Wisconsin. Delaware also had a credit reduction for 2013 but as of Jan. 1, 2014, is in its fourth year of borrowing from the account.
South Carolina, which like Indiana is in its sixth year of borrowing from the account, also may have a benefit cost rate add-on for 2014. Despite many years of borrowing, South Carolina did not have credit reductions from 2011 to 2013 because the Labor Department approved its credit-reduction avoidance plan.
Because 2013 was the fifth consecutive year that Indiana and South Carolina had a federal unemployment loan balance on Jan. 1, the add-on may have been assessed on employers in these states had the states not received Labor Department relief. South Carolina's credit-reduction avoidance application enabled it to avoid the add-on and the credit reduction of 1.2 percent that would have applied under standard credit-reduction rules. The approval of Indiana's fifth-year waiver application enabled employers in the state to not be assessed the add-on, although they still experienced a credit reduction of 1.2 percent.
If Indiana's fifth-year waiver application had not been approved, employers would have been assessed a benefit cost rate add-on of up to $98 for each employee in addition to the 2013 credit reduction of 1.2 percent, which caused employers to pay up to an additional $84 for each employee. While the credit reduction of 1.2 percent plus the standard FUTA rate of 0.6 percent caused Indiana employers to pay up to $126 for each employee in FUTA costs for 2013, the add-on would have increased FUTA costs for Indiana employers to up to $224 for each employee.
Employers should recognize that if they are in a state that had a federal unemployment loan balance for at least five years, has a balance on Nov. 10, 2014, and did not acquire either a credit-reduction avoidance or fifth-year waiver from the Labor Department, they may be assessed a benefit cost rate add-on with a greater cost for each employee than would be incurred because of a credit reduction of 1.2 percent for states in their fifth year of borrowing and 1.5 percent for sixth-year borrowers.
For a state's credit reduction relief application to be approved, the state must achieve solvency and revenue targets required by that application.
Forty-four jurisdictions enacted legislation or implemented regulations by Oct. 21, 2013, to prevent employers from obtaining relief from benefit charges that states improperly paid because of untimely or inadequate responses to information requests sent to employers or their agents.
Many states specified that employers are not able to obtain relief from the charges if the employers or their agents established a pattern of untimely of inadequate responses.
Fewer than half the states that implemented the provisions have exceptions that enable employers to achieve relief in some circumstances.
This is the first full year that employers in Ohio and Wisconsin are able to implement shared-work plans, also known as work-sharing programs and short-time compensation plans. Bills to enable employers to implement shared-work plans in 2014 are so far under consideration by the legislatures of Hawaii (H.B. 58), Illinois (H.B. 3402), Indiana (H.B. 1338), Nebraska (L.B. 559), North Carolina (S. 645), Virginia (S. 110) and West Virginia (H.B. 2952).
Shared-work plans enable employers to avoid layoffs by reducing employees' hours and wages, while employees affected by the plans can acquire limited unemployment benefits to offset the reduced wages. As shared-work plans can reduce benefit costs charged to employers' unemployment accounts because there may be fewer reduced hours among shared-work employees than there would have been with layoffs, the reduced benefit charges can help employers guard against unemployment tax increases.
In addition to Ohio and Wisconsin, 24 states and the District of Columbia enable employers to implement shared-work plans.
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