The State of

Unemployment Insurance Taxes

in South Carolina

Background

UNEMPLOYMENT INSURANCE TRUST FUND INSOLVENCY

• In one decade, the South Carolina Unemployment Insurance Trust Fund dwindled from a $600 million surplus to a $933 million deficit.

– Downturn in the economy caused unemployment claims to increase

– SUTA rate was too low to cover increasing costs

– Employment Security Commission failed to get the General Assembly’s attention to notify them of the impending crisis

– South Carolina began borrowing funds from the federal government in December 2008

– State now owes the federal government $933 million

2010 Law Recalculated Rates

– 20 Tier System

– Employers placed into tiers based on benefit ratio for

previous seven years

– Employers who had no unemployment claims for previous

seven years were placed into Tier 1 – 53% of employers

– Employers who had the most unemployment claims were

placed into Tier 20

2010 Employer Rates (per employee per year) Tier

2011 Employer Rates (per employee per year)

Estimated Number of SC Employers in Each Tier

$86.80 1 $10.30 45,426

$111.30 2 $103.80 1,963

$135.80 3 $114.30 1,383

$160.30 4 $126.90 950

$184.80 5 $140.60 953

$209.30 6 $155.30 1,212

$233.80 7 $172.10 1,026

$258.30 8 $190.00 1,425

$282.80 9 $211.00 1,640

$307.30 10 $233.10 1,479

$331.80 11 $258.30 1,469

$356.30 12 $286.70 1,771

$380.80 13 $543.30 2,133

$405.30 14 $602.20 2,219

$427.00 15 $668.40 2,844

16 $742.00 2,724

17 $824.00 3,007

18 $915.50 3,051

19 $1,016.40 2,955

20 $1,127.90 5,601

TOTAL EMPLOYERS: 85,231

The Fallout

• Very little warning of the SUTA rate increases left many

companies scrambling to find ways to pay their taxes.

• Some companies saw up to 600% increases, while over 50% of

South Carolina companies got a rate decrease.

• Manufacturers and staffing companies were hit the hardest.

• Many companies put in place hiring freezes, halted future

expansion plans, and had further layoffs.

Manufacturing Burden of UI Debt Repayment Plan Data from SCDEW for NAICS 31, 32, and 33

Tier Firms Estimated Employment 2009/10

1 1,164 28.30% 5,116 2.20%

2 60 1.50% 5,175 2.30%

3 62 1.50% 6,616 2.90%

4 52 1.30% 9,607 4.20%

5 27 0.70% 5,880 2.60%

6 55 1.30% 21,982 9.60%

7 57 1.40% 4,288 1.90%

8 84 2.00% 6,330 2.80%

9 97 2.40% 10,370 4.50%

10 97 2.40% 5,936 2.60%

11 88 2.10% 6,617 2.90%

12 94 2.30% 8,912 3.90%

13 137 3.30% 8,293 3.60%

14 163 4.00% 9,531 4.20%

15 201 4.90% 12,878 5.60%

16 232 5.70% 16,806 7.30%

17 296 7.20% 17,665 7.70%

18 309 7.50% 19,279 8.40%

19 288 7.00% 19,044 8.30%

20 543 13.20% 28,603 12.50%

TOTAL 4,106 228,927

LEGISLATIVE ACTION

• The House and Senate held months of debate with over forty

different scenarios considered to recalculate rates.

• Ultimately, the General Assembly decided to appropriate one-

time funds and impose eligibility restrictions to provide all

companies with about 22% SUTA tax decreases.

– Appropriated $146 million to go towards paying back the federal loan

– Reduced workers’ eligibility benefits from 26 weeks to 20 weeks

– Imposed eligibility restrictions on seasonal workers

Other SUTA Legislative Reforms

• Employers who had a surplus for previous seven years, will be

placed in Tier 12 for 2011 only.

• New employers coming into South Carolina will be placed in

Tier 12, rather than Tier 13, until they have gained 12 months

experience.

• Interest for SUTA payment plans was reduced from 1% per

month to .25%.

Unemployment Insurance Tax

Cost Savings After $146 Million Appropriation

Rate Class Initial 2011 Estimated Cost Per Worker

Revised 2011 Estimated Cost Per Worker

Estimated Cost Savings Per Worker

Estimated Percent Savings

1 $10.30 $10.30 $0.00 0.00%

2 $103.80 $81.80 $22.00 21.2%

3 $114.30 $90.30 $24.00 21.0%

4 $126.90 $99.90 $27.00 21.3%

5 $140.60 $110.60 $30.00 21.3%

6 $155.30 $122.30 $33.00 21.3%

7 $172.10 $135.10 $37.00 21.5%

8 $190.00 $149.00 $41.00 21.6%

9 $211.00 $165.00 $46.00 21.8%

10 $233.10 $183.10 $50.00 21.5%

11 $258.30 $202.30 $56.00 21.7%

12 $286.70 $223.70 $63.00 22.0%

13 $543.30 $423.30 $120.00 22.1%

14 $602.20 $470.20 $132.00 22.0%

15 $668.40 $521.40 $147.00 22.0%

16 $742.00 $579.00 $163.00 22.0%

17 $824.00 $642.00 $182.00 22.1%

18 $915.50 $712.50 $203.00 22.2%

19 $1,016.40 $791.40 $225.00 22.2%

20 $1,127.90 $878.90 $249.00 22.1%

Credits & Refunds

• Companies will receive final notification of revised unemployment insurance tax rates around September 23, 2011.

• Credits and refunds for the first and second quarters of 2011 total $80 million.

• Federal law will only allow for a credit for first quarter overpayments. The credit will be

applied as payment towards future taxes. Companies will not have to take any action to make this happen.

• Overpayments for the second quarter will be refunded upon request to the agency. – SCDEW, Attn: Tax, 1550 Gadsen Street, Columbia, SC 29202

– rateinfo@dew.sc.gov

• The lower tax rates for the third and fourth quarters are expected to save businesses a total of $58.2 million.

• October 1, 2011 - SCDEW Web portal will be made available for companies to view credits and request refunds.

• For updates, please visit http://dew.sc.gov/emp-land.asp, Twitter @scdewinfo, https://www.scbos.sc.gov/ or contact rateinfo@dew.sc.gov.

What to Expect Going Forward

• January 1, 2012 – SUTA Taxable Wage Base

increases from $10,000 to $12,000

• January 1, 2014 – Look back period reduced

from 7 years to 3 years

• January 1, 2015 – SUTA Taxable Wage Base

increases from $12,000 to $14,000

What Happens to Rates for 2012?

• Will employers’ rates go back up?

• Will the SC General Assembly appropriate another $130-

$140 million to make the 2012 federal loan payment?

• Will President Obama forgive or delay loan payments?

– Battleground states: • California - $8.8 billion

• North Carolina - $2.5 billion

• Florida - $1.5 billion

• Ohio - $2.6 billion