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Unemployment Cost Management The Good, The Bad and the Ugly Tennessee Statewide APA Barnett Associates, Inc. August 2012.

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Presentation on theme: "Unemployment Cost Management The Good, The Bad and the Ugly Tennessee Statewide APA Barnett Associates, Inc. August 2012."— Presentation transcript:

1 Unemployment Cost Management The Good, The Bad and the Ugly Tennessee Statewide APA Barnett Associates, Inc. August 2012


3 WHO PAYS UNEMPLOYMENT TAXES? Every Employer Every Entity Every State PR, VI GUAM


5 HOW IS YOUR COST DETERMINED? REIMURSABLE – 501(c) – Not for profit – Dollar For Dollar!!!! – Protesting of UI Claims – Super important Experience Rated

6 HO MUCH DO YOU PAY? HO MUCH DO YOU PAY? National Average DomesticEmploymentTaxableWagesTaxablePayrollTaxRateEstimated Tax Cost 50,000$12,000$600,000,0003.10%$18,600,000 10,000$12,000$120,000,0003.10%$3,720,000 1,000$12,000$12,000,0003.10%$372,000 500$12,000$6,000,0003.10%$186,000 100$12,000 $1,200,0003.10%$37,200

7 DEFINITIONS FOR TAX RATE CALCULATIONS EXPERIENCE RATING: unemployment tax rates are based on the stability of the employment history of an organization RESERVE BALANCE: sum of the total contributions paid, less unemployment claims collected against an account. Positive or Negative RESERVE RATIO: reserve balance divided by taxable payroll BENEFIT CHARGES: unemployment benefit payments made to previous employees BENEFIT RATIO: benefit charges divided by taxable payroll

8 Rate Calculations Benefit Ratio State 20 States use this calculation Calculates tax rate based on Taxable Payroll & Benefit Charges Benefit Charges collected have a more direct effect on the unemployment tax rate Reserve Ratio State 34 States use this calculation Calculates tax rate based on Taxable Payroll, Benefit Charges & Reserve Balance Reserve Balance is like your Bank Account for unemployment taxes

9 Reserve Ratio States ArkansasLouisianaNew Jersey ArizonaMassachusettsNew Mexico CaliforniaMaineNew York ColoradoMichiganOhio District of ColumbiaMissouriPennsylvania GeorgiaMontanaRhode Island HawaiiNebraskaSouth Carolina IdahoNorth CarolinaSouth Dakota IndianaNorth DakotaTennessee KansasNevadaWest Virginia KentuckyNew HampshireWisconsin States Where Tax Contributions Most Affect Rate

10 Benefit Ratio States AlabamaMississippi Alaska*Oklahoma ConnecticutOregon DelawarePennsylvania** FloridaTexas IllinoisUtah IowaVirginia MarylandVermont Michigan**Washington MinnesotaWyoming States Where Claims Activity Most Affects Rate **Combination of Reserve & Benefit Ratio state 5 * Payroll Stabilization

11 State of Tennessee Reference Chart See All State Ref!!! Rate Calculation Reserve State Maximum Tax Rate 10.60% Wage Base $9,000 Penalty Rate Rate Issue Date 9/28 Average Weekly Benefit Amount Joint Accounting N/A Max Potential Benefit Amount (26 weeks) Voluntary Contributions Yes (2/26) Respond to Claim (Deadline) New Business Rate 2.70% 1 st Level Appeal (Deadline) NBR (Duration) 3.5 Years Worksite State Minimum Tax Rate 1.10%

12 TN Unemployment Rate TN RATE

13 TN Unemployment Rate Projection You Can Do It!!! TN RATE PROJECTION

14 How to Control Unemployment How to Control Unemployment Cost Impact Techniques CostReductionAreas AuditRecovery VoluntaryContributions JointAccounting RestructureCompliance WageContinuation ClaimsControl

15 Voluntary Contribution – KY Example KY RATE

16 CompanyName Estimated Estimated Taxable Payroll Individual Tax Rate J/A ReserveBalanceActual Savings Savings Company A $38,308,7356.60%1.30% $ (62,508) $ 1,676,994 Company B $10,899,8890.20%1.30% 2,353,236(115,400) Company C $17,779,0260.20%1.30% 4,261,663(186,619) Voluntary Contribution($62,509) 1 st Year Joint Account Savings $1,312,466 Energy & Utility Client By sharing unemployment tax reserves between commonly owned subsidiaries the following actual savings was secured: Joint Accounting

17 Tax Effect on 2 Denied Claims– KY Example Under Construction

18 Claims Control Claims Control Tax Impact on Claims Won StateCompanyClaimsWonLiabilityRemovedTaxable Payroll Payroll 2012 Rate (Issued) (W/O) Estimated Savings DE COMPANY A(4)(25,928)91,0425.50%1.10%4,006 IL COMPANY B(20)(164,117)4,522,2979.15%6.35%126,624 IN COMPANY C(20)(153,572)6,658,3153.28%1.58%112,858 MI COMPANY D(20)(155,964)1,560,7796.80%4.20%40,580 MN COMPANY E(8)(74,506)3,334,0661.43%0.71%24,065 OK COMPANY F(2)(14,411)458,7281.20%0.30%4,129 OR COMPANY G(14)(105,615)967,2593.00%2.20%7,738 SC COMPANY H(8)(49,670)549,9221.81%0.81%5,483 WA COMPANY I(16)(160,601)4,994,1210.87%0.26%30,464 WI COMPANY J(20)(143,010)3,516,1924.34%1.76%90,718 (112)$1,047,394 Annual Tax Savings $446,665

19 Where is Unemployment Being Felt and Why Have Costs Increased

20 Legislative Changes STATE 15 states increased15 states increased taxable wage bases from 2010 vs. 2011 26 states increased26 states increased taxable wage bases from 2011 vs. 2012 10 statesCurrently, 10 states have reached the maximum level on their Tax Rate Schedule FL, NM, UTA few states have re-released lower 2012 tax rates: FL, NM, UT GeorgiaGeorgia re-released higher 2012 tax ratesFEDERAL $40 billion Since December 2008, 32 states have borrowed over $40 billion from the federal government lose 0.30% If any of these states cant pay back their balance within two years of borrowing, employers will lose 0.30% of the FUTA tax credit annually 21 States defaulted in 2011. 16 are expected to default in 2012

21 2011/12 Taxable Wage Base Increases State 2011 Taxable Base 2012 Taxable Base Alaska34,60025,800 Colorado10,00011,000 Florida7,0008,500 Hawaii34,20038,800 Idaho33,30034,100 Illinois12,74013,560 Iowa24,70025,300 Kentucky8,0009,000 Michigan 9,500 Minnesota27,00028,000 Montana26,30027,000 Nevada26,60026,400 New Hampshire 12,00014,000 New Jersey 29,60030,300

22 2011/12 Taxable Wage Base Increases 2011/12 Taxable Wage Base Increases (Continued) State 2011 Taxable Base 2012 Taxable Base New Mexico 21,90022,400 North Carolina 19,70020,400 North Dakota 25,50027,900 Oklahoma18,60019,100 Oregon32,30033,000 Rhode Island 19,00019,600 / 21,100 South Carolina 10,00012,000 South Dakota 11,00012,000 Utah28,60029,500 Vermont13,00016,000 Virgin Islands 22,60023,700 Washington37,30038,200 Wyoming22,30023,000

23 Final Thoughts

24 Business Flow Process Best Practice Standard #1 Correctly Identify Separation #2 Analyze the Viability #3 Complete Forms & Timely Communication w State #4 Reinforce Consistent Behavior w State

25 Business Process Recommendations If you have one - Use your consultant!!! – they will educate you Know where your costs are and why they changed! Take full advantage of allowable saving techniques permissible per State Review Benefit Charge Statements Review/Create Hiring Policy Consistent Corrective Disciplinary Practices Educate Field Reps Re-enforce Worksite Location vs. Address of Record Review Address of Record (re-file POA forms) Project both SUTA and FUTA rates (or have vendor project them)


27 UI Links TN Employee Handbook - wfd/Employers/forms/emphand00.pdf wfd/Employers/forms/emphand00.pdf SIDES - UWC – AUTO – ITSC -

28 Barnett Associates Barnett Associates Cast & Crew Jared S. Vale Director, Strategy & Compliance Barnett Associates, Inc. 61 Hilton Ave Garden City, NY 11530 Phone (516) 750-7037

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