Transcript Slide 1

Solutions to Growing Concerns of
Increased Unemployment Costs
Indiana Statewide APA
Barnett Associates, Inc.
September 2014
Presentation Agenda
I. The Who: Who is impacted/Responsible
II. The How: How is Unemployment Calculated
III. The Where: Where is Unemployment being felt
on the national and state levels
IV. The Why: Why have unemployment costs
increased?
V. The When: When can unemployment be most
impacted?
VI. The What: What can I do to control my
unemployment?
Who is Impacted/Responsible Stakeholder
Shared Responsibility
PAYROLL
HUMAN
RESOURCES
SHARED
SERVICES
SUI
Responsibility
TAX
FINANCE
Tax Cost Comparison
National Average
Domestic
Employment
Taxable
Wages
Taxable
Payroll
Tax
Rate
Estimated
Tax Cost
50,000
$16,000
$600,000,000
3.70%
$29,600,000
10,000
$16,000
$120,000,000
3.70%
$5,920,000
1,000
$16,000
$12,000,000
3.70%
$592,000
500
$16,000
$6,000,000
3.70%
$296,000
100
$16,000
$1,200,000
3.70%
$59,200
How is Unemployment Calculated
Rate Calculations
Benefit Ratio State
Reserve Ratio State
• 20 States use this
calculation
•
34 States use this
calculation
• Calculates tax rate based
on Taxable Payroll &
Benefit Charges
•
Calculates tax rate based
on Taxable Payroll, Benefit
Charges & Reserve
Balance
•
Reserve Balance is like
your “Bank Account” for
unemployment taxes
• Benefit Charges collected
have a more direct effect
on the unemployment tax
rate
Reserve Ratio States
States Where Tax Contributions Most Affect Rate
Arkansas
Louisiana
New Jersey
Arizona
Massachusetts
New Mexico
California
Maine
New York
Colorado
Michigan
Ohio
District of Columbia
Missouri
Pennsylvania
Georgia
Montana
Rhode Island
Hawaii
Nebraska
South Carolina
Idaho
North Carolina
South Dakota
Indiana
North Dakota
Tennessee
Kansas
Nevada
West Virginia
Kentucky
New Hampshire
Wisconsin
Benefit Ratio States
States Where Claims Activity Most Affects Rate
Alabama
Mississippi
Alaska*
Oklahoma
Connecticut
Oregon
Delaware
Pennsylvania**
Florida
Texas
Illinois
Utah
Iowa
Virginia
Maryland
Vermont
Michigan**
Washington
Minnesota
Wyoming
* Payroll Stabilization
5
**Combination of Reserve & Benefit Ratio state
State of Indiana Reference Chart
Rate Calculation
Reserve State
Maximum Tax Rate
7.918%
Wage Base
$9,500
Penalty Rate
2.00%
Rate Issue Date
2/1
Average Weekly Benefit
Amount
$ 302.60
Joint Accounting
N/A
Max Potential Benefit Amount
(26 weeks)
$ 10,140
Voluntary
Contributions
Yes (3/3)
Respond to Claim (Deadline)
7- 10 Days
New Business
Rate
2.50%
1st Level Appeal (Deadline)
10 Days
NBR (Duration)
3 Years
Worksite State
No
Minimum Tax
Rate
0.535%
Indiana Unemployment Rate
Employer Account Number:
12-34567-0
Mailing Date:
2/1/2013
COMPANY XYZ, INC.
2013 Rate Computation
1st Year:
$708,699.46
Total Premium for 2013:
6.099%
2nd Year:
$843,018.90
Merit Portion:
5.700%
3rd Year:
$ 888,680.91
Penalty Portion:
0.00%
Total 3 Years:
$ 2,440,399.27
Surcharge Portion:
0.399%
Account Balance:
$ 157,065.94(DR)
SUTA Portion:
0.00%
Total Contribution Rate for 2013:
6.099%
State of IN M&A/Reorg Chart
Common/Non Ownership Total Reorg
Successor rate for the remainder of the year, commingled rate
thereafter. Transfer date based on the date of disposition of
the predecessor account.
Common/Non Ownership Partial Reorg
Successor rate for the remainder of the year, commingled rate
thereafter. Transfer date based on the date of disposition of
the predecessor account.
Reorg into NewCo
Highest rate of all of the predecessors.
Where is Unemployment Being Felt and
Why Have Costs Increased
Legislative Changes
STATE
•
26 states increased taxable wage bases
from 2011 - 2012
•
23 state increased taxable wage bases
from 2012 - 2013
•
2 states decreased taxable wages from
2012 - 2013
•
4 states increased rate schedule or rate
calculation factors from 2012 - 2013
•
11 states decreased rate schedule or rate
calculation factors from 2012 – 2013
•
5 states increased rate schedule or rate
calculation factors from 2013 - 2014
•
13 states decreased rate schedule or rate
calculation factors from 2013 – 2014
•
23 state increased taxable wage bases
from 2013 – 2014 2 states decreased
FEDERAL
• Since December 2008, 32 states
have borrowed over $40 billion
from the federal government
• If any of these states can’t 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.
19 states defaulted in 2012.
19 states defaulted in 2013.
11 states are projected to default
in 2014.
2013/14 Taxable Wage Base Increases
State
2013 Taxable Base
2014 Taxable Base
Alaska
36,900
37,400
Colorado
11,300
11,700
Delaware
10,500
18,500
Hawaii
39,600
40,400
Idaho
34,800
35,200
Illinois
12,900
12,960
Iowa
26,000
26,800
Kentucky
9,300
9,600
Montana
27,900
29,000
Nevada
26,900
27,400
New Jersey
30,900
31,500
New Mexico
22,900
23,400
2013/14 Taxable Wage Base Increases
(Continued)
State
2013 Taxable Base
2014 Taxable Base
New York
8,500
10,300
North Carolina
20,900
21,400
North Dakota
31,800
33,600
Oklahoma
20,100
18,700
Oregon
34,100
35,000
Pennsylvania
8,500
8,750
Rhode Island
20,200/ 21,700
20,600/22,100
South Dakota
13,000
14,000
Utah
30,300
30,800
Virgin Islands
23,600
22,500
Washington
39,800
41,300
Wisconsin
13,000
14,000
Wyoming
23,800
24,500
FUTA Tax Review
Potential Employer Cost Impact
FUTA
Tax Rate
FUTA
Wage Base
FUTA
Tax Impact
6.00%
$7,000
$420 Per Employee
FUTA
Tax Rate
FUTA
Tax Credit
FUTA Tax Rate
(less credit)
FUTA
Tax Impact
6.00%
5.40%
0.60%
$42 Per Employee
Please Note:
•
If Federal Title XII loan remains outstanding for two years, employers in the affected
state lose 0.30% of the 5.4% credit (or $21 per employee)
•
0.30% FUTA credit loss continues for every year the Federal Title XII loan remains
unpaid (Example: Year 1 = 0.3%; Year 2 = 0.6%, etc.)
Title XII Loan Update
$100 Million Borrowers
State
Balance 9/04/2014
Year Borrowing Started
$7,731,967,255
2009
CONNECTICUT
$432,627,820
2009
INDIANA
$838,950,874
2008
KENTUCKY
340,748,188
2009
NEW YORK
$1,336,914,309
2009
$606,749,411
2009
$1,380,308,691
2009
$270,490,527
N/A
CALIFORNIA
NORTH CAROLINA
OHIO
SOUTH CAROLINA
(Net) 2014 FUTA Tax Rates
Began
Borrowing
Projected
2014 Rate
Began
Borrowing
Projected
2014 Rate
Alabama
N/A
0.60%
Indiana
2008
2.10%
Alaska
N/A
0.60%
Iowa
N/A
0.60%
Arizona
2014
0.60%
Kansas
N/A
0.60%
Arkansas
2009
1.80%
Kentucky
2009
1.80%
California
2009
1.80%
Louisiana
N/A
0.60%
Colorado
N/A
0.60%
Maine
N/A
0.60%
Connecticut
2009
2.30%
Maryland
N/A
0.60%
Delaware
2010
1.50%
Massachusetts
N/A
0.60%
District of Columbia
N/A
0.60%
Michigan
N/A
0.60%
Florida
N/A
0.60%
Minnesota
N/A
0.60%
Georgia
N/A
0.60%
Mississippi
N/A
0.60%
Hawaii
N/A
0.60%
Missouri
N/A
0.60%
Idaho
N/A
0.60%
Montana
N/A
0.60%
Illinois
N/A
0.60%
State
State
(*) Assumes state will default on 2012 Federal Loan
(a) Qualified for credit reduction avoidance - (b) Sold bonds to pay Federal Loan - (c) Expected to sell bonds to pay Federal Loan
(Net) 2014 FUTA Tax Rates
Began
Borrowing
Projected
2014 Rate
Began
Borrowing
Projected
2014 Rate
Nebraska
N/A
0.60%
Rhode Island
2009
1.80%
Nevada
N/A
0.60%
South Carolina
N/A
0.60%
New Hampshire
N/A
0.60%
South Dakota
N/A
0.60%
New Jersey
N/A
0.60%
Tennessee
N/A
0.60%
New Mexico
N/A
0.60%
Texas
N/A
0.60%
New York
2009
1.80%
Utah
N/A
0.60%
North Carolina
2009
1.80%
Vermont
N/A
0.60%
North Dakota
N/A
0.60%
Virgin Islands
2009
1.80%
Ohio
2009
1.80%
Virginia
N/A
0.60%
Oklahoma
N/A
0.60%
Washington
N/A
0.60%
Oregon
N/A
0.60%
West Virginia
N/A
0.60%
Pennsylvania
N/A
0.60%
Wisconsin
N/A
0.60%
Puerto Rico
N/A
0.60%
Wyoming
N/A
0.60%
State
State
Federal Unemployment Tax
SUI Impact if Taxable Wage Bases
Less Than $15,000
State
2014 Wage Bases
State
2014 Wage Bases
State
2014 Wage Bases
AL
$8,000
KY
$9,900
OH
$9,000
AR
$12,000
LA
$7,700
PA
$9,000
AZ
$7,000
MA
$14,000
PR
$7,000
CA
$7,000
MD
$8,500
SC
$14,000
CO
$11,700
ME
$12,200
TN
$9,000
DC
$9,000
MI
$9,500
TX
$9,000
FL
$8,000
MO
$13,000
VA
$8,000
GA
$9,500
MS
$14,000
WI
$14,000
IL
$12,960
NE
$9,000
WV
$12,000
IN
$9,500
NH
$14,000
KS
$12,000
NY
$10,500
Proposed 2015 increase to 15,000 for FUTA wage base
When Can Unemployment be Impacted
and What Can I do to Help
Unemployment Cost Drivers
•
•
•
•
•
•
Mergers
Acquisitions
Divestitures
Spin Off
Bankruptcy
Joint Ventures
•
•
•
•
•
•
Expansion
New Company
Closures
Layoffs/Terminations
Legislation
Economy
How to Control Unemployment
Cost Impact Techniques
Audit
Recovery
Claims
Control
Voluntary
Contributions
Cost
Reduction
Areas
Wage
Continuation
Joint
Accounting
Restructure
Compliance
Audit Analysis & Recovery
A company was issued a penalty 2013 tax rate of 10.9010% in Pennsylvania.
The penalty was issued due to a state miscalculation. Once all the necessary
documentation was presented to the state the protest was upheld and a
revised rate was issued.
Estimated
Taxable Payroll
Penalty
Tax Rate
Revised
Tax Rate
Estimated
2012 Savings
$37,000,000
10.9010%
7.7270%
$1,174,380
Voluntary Contribution
Taxable Payroll
Current Tax Rate
Voluntary Contribution
Revised Rate
Gross Savings
Annual Net Savings
30 Employees
1,030 Employees
1,030 Employees
Voluntary
Contribution
Next Rate Group
Voluntary
Contribution
Next Rate Group
Voluntary
Contribution
MIN Rate Group
$270,000
$9,540,000
$9,540,000
6.22%
6.22%
6.22%
($1,000)
($1,000)
($12,000)
6.12%
6.12%
0.22%
$270
$9,540
$572,400
($730)
$8,540
$560,400
Joint Accounting
Energy & Utility Client
By sharing unemployment tax reserves between commonly owned
subsidiaries the following actual savings was secured:
Company
Name
Estimated
Taxable Payroll
Individual
Tax Rate
J/A
Tax Rate
Reserve
Balance
Actual
Savings
Company A
$38,308,735
6.60%
1.30%
$ (62,508)
$ 1,676,994
Company B
$10,899,889
0.20%
1.30%
2,353,236
(115,400)
Company C
$17,779,026
0.20%
1.30%
4,261,663
(186,619)
Voluntary Contribution
($62,509)
1st Year Joint Account Savings
$1,312,466
Restructure Compliance
Transfer Rate vs. New Business Rate
NBR
NBR
Duration
1st Year
Savings
1.40%
2.70%
2 Years
$58,500
$117,000
$4,000,000
2.4370%
3.7030%
2 Years
$50,640
$101,280
$4,750,000
1.53%
3.36%
2 Years
$86,925
$173,850
$196,065
$392,130
State
Taxable
Payroll
Existing
Tax Rate
OH
$4,500,000
PA
MI
Estimated Savings:
*Example based on estimated 500 employees per state
Total
Savings
Restructure Compliance
Entertainment Client
This company acquired property during it’s entry into a new state. There were
three existing entities at the point of acquisition. They avoided a maximum
tax rate (from one of the properties) and secured a near minimum tax rate to
save for (at least) the next 3 years as follows:
Year
Estimated
Taxable Payroll
Potential
Transferred
Tax Rate
Secured
Tax Rate
Projected
Tax Savings
2011
$ 1,500,000
9.60%
0.90%
$ 129,000
2012
1,500,000
9.60%
0.90%
129,000
2013
1,500,000
9.60%
3.00%
99,000
Corporate Restructure Compliance Tax Savings
$ 357,000
Wage Continuation
300 employees transferred from Company A to Company B effective July 1, 2012.
Transferring the year-to-date wages from the predecessor to the successor saved as
follows:
Tax
Estimated
Taxable Payroll
Tax Rate
Cost without
Wage Continuation
SUI
$ 3,075,000
2.86%
$ 87,945
FUTA
$ 3,075,000
0.80%
$ 24,600
Wage Continuation Savings:
Wage Continuation Notes
•20 states apply automatic credit (maybe)
•30 states require transfer of experience
$ 112,545
Claims Control
Tax Impact on Claims Won
State
Company
Claims
Won
Liability
Removed
Taxable
Payroll
2013 Rate 2013 Rate Estimated
(W/O)
(Issued)
Savings
DE
COMPANY A
(4)
(25,928)
91,042
5.50%
1.10%
4,006
IL
COMPANY B
(20)
(164,117)
4,522,297
9.15%
6.35%
126,624
IN
COMPANY C
(20)
(153,572)
6,658,315
3.28%
1.58%
112,858
MI
COMPANY D
(20)
(155,964)
1,560,779
6.80%
4.20%
40,580
MN
COMPANY E
(8)
(74,506)
3,334,066
1.43%
0.71%
24,065
OK
COMPANY F
(2)
(14,411)
458,728
1.20%
0.30%
4,129
OR
COMPANY G
(14)
(105,615)
967,259
3.00%
2.20%
7,738
SC
COMPANY H
(8)
(49,670)
549,922
1.81%
0.81%
5,483
WA
COMPANY I
(16)
(160,601)
4,994,121
0.87%
0.26%
30,464
WI
COMPANY J
(20)
(143,010)
3,516,192
4.34%
1.76%
90,718
(112)
$1,047,394
Annual Tax Savings $446,665
Final Thoughts
Business Flow Process
Best Practice Standard
#4
Reinforce
Consistent
Behavior w State
#3
Complete Forms & Timely
Communication
w State
#1
Correctly Identify
Separation
#2
Analyze the
Viability
Business Process Recommendations
•
•
•
•
•
•
Know where your costs are and why they changed!
Take full advantage of allowable saving techniques permissible per State
Review Benefit Charge Statements
Be sure that the unemployment claims are under review
Review Address of Record (re-file POA forms)
Project both SUTA and FUTA rates (or have vendor project them)
Barnett Associates
Peter Moffitt
Vice President
Barnett Associates, Inc.
61 Hilton Ave
Garden City, NY 11530
Phone (516) 877-2860
[email protected]