Unemployment Cost ManagementUnemployment Cost Management““The Good, The Bad and the Ugly”The Good, The Bad and the Ugly”

Tennessee Statewide APATennessee Statewide APA

Barnett Associates, Inc. Barnett Associates, Inc. August 2012August 2012

WHO PAYS UNEMPLOYMENT TAXES?WHO PAYS UNEMPLOYMENT TAXES?

• Every Employer• Every Entity• Every State• PR, VI GUAM

WHO IS RESPONSIBLE???WHO IS RESPONSIBLE???

SHAREDSHAREDSERVICESSERVICES

TAXTAX FINANCEFINANCE

HUMANHUMANRESOURCESRESOURCES

PAYROLLPAYROLL

SUISUIResponsibilityResponsibility

HOW IS YOUR COST DETERMINED?HOW IS YOUR COST DETERMINED?• REIMURSABLE – 501(c) – Not for profit

– Dollar For Dollar!!!!– Protesting of UI Claims – Super important

• Experience Rated

HO MUCH DO YOU PAY?HO MUCH DO YOU PAY?National Average

DomesticDomesticEmploymentEmployment

TaxableTaxableWagesWages

Taxable Taxable PayrollPayroll

TaxTaxRateRate

Estimated Estimated Tax CostTax Cost

50,00050,000 $12,000 $600,000,000 3.10% $18,600,000$18,600,000

10,00010,000 $12,000 $120,000,000 3.10% $3,720,000$3,720,000

1,0001,000 $12,000 $12,000,000 3.10% $372,000$372,000

500500 $12,000 $6,000,000 3.10% $186,000$186,000

100100 $12,000 $1,200,000 3.10% $37,200$37,200

DEFINITIONS FOR TAX RATE CALCULATIONSDEFINITIONS 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

Rate CalculationsRate Calculations

Benefit Ratio StateBenefit 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 StateReserve 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

Reserve Ratio StatesReserve Ratio States

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

States Where States Where Tax ContributionsTax Contributions Most Affect Rate Most Affect Rate

Benefit Ratio StatesBenefit Ratio States

Alabama Mississippi

Alaska* Oklahoma

Connecticut Oregon

Delaware Pennsylvania**

Florida Texas

Illinois Utah

Iowa Virginia

Maryland Vermont

Michigan** Washington

Minnesota Wyoming

States Where States Where Claims ActivityClaims Activity Most Affects Rate Most Affects Rate

**Combination of Reserve & Benefit Ratio state**Combination of Reserve & Benefit Ratio state55

* Payroll Stabilization* Payroll Stabilization

State of Tennessee Reference ChartState of Tennessee Reference ChartSee All State Ref!!!See All State Ref!!!

Rate CalculationRate Calculation Reserve State Maximum Tax RateMaximum Tax Rate 10.60%

Wage BaseWage Base $9,000 Penalty RatePenalty Rate

Rate Issue DateRate Issue Date 9/28 Average Weekly Benefit Average Weekly Benefit AmountAmount

Joint AccountingJoint Accounting N/A Max Potential Benefit Amount Max Potential Benefit Amount (26 weeks)(26 weeks)

Voluntary Voluntary ContributionsContributions Yes (2/26) Respond to Claim (Deadline)Respond to Claim (Deadline)

New Business New Business RateRate 2.70% 11stst Level Appeal (Deadline) Level Appeal (Deadline)

NBR (Duration)NBR (Duration) 3.5 Years Worksite StateWorksite State

Minimum Tax Minimum Tax RateRate 1.10%

TN Unemployment RateTN Unemployment Rate

• TN RATE

TN Unemployment Rate ProjectionTN Unemployment Rate ProjectionYou Can Do It!!!You Can Do It!!!

• TN RATE PROJECTION

How to Control UnemploymentHow to Control UnemploymentCost Impact Techniques

Audit Audit RecoveryRecovery

VoluntaryVoluntaryContributionsContributions

JointJointAccountingAccounting

RestructureRestructureComplianceCompliance

WageWageContinuationContinuation

Claims Claims ControlControl

Cost Cost Reduction Reduction

AreasAreas

Voluntary Contribution – KY ExampleVoluntary Contribution – KY Example

• KY RATE

CompanyCompanyNameName

Estimated Estimated Taxable PayrollTaxable Payroll

IndividualIndividualTax RateTax Rate

J/AJ/ATax RateTax Rate

Reserve Reserve BalanceBalance

ActualActual SavingsSavings

Company ACompany A $38,308,735 6.60% 1.30% $ (62,508) $ 1,676,994$ 1,676,994

Company BCompany B $10,899,889 0.20% 1.30% 2,353,236 (115,400)(115,400)

Company CCompany C $17,779,026 0.20% 1.30% 4,261,663 (186,619)(186,619)

Voluntary Contribution ($62,509)($62,509)

11stst Year Joint Account Savings Year Joint Account Savings $1,312,466$1,312,466

Energy & Utility Client Energy & Utility Client

By sharing unemployment tax reserves between commonly owned subsidiaries the following actual savings was secured:

Joint AccountingJoint Accounting

Tax Effect on 2 Denied Claims– KY Tax Effect on 2 Denied Claims– KY ExampleExample

• Under Construction

Claims ControlClaims ControlTax Impact on Claims Won

StateState CompanyCompany Claims Claims WonWon

LiabilityLiabilityRemovedRemoved

TaxableTaxable PayrollPayroll

2012 Rate 2012 Rate (Issued)(Issued)

2012 Rate2012 Rate(W/O)(W/O)

Estimated Estimated SavingsSavings

DE COMPANY A (4)(4) (25,928) 91,042 5.50% 1.10% 4,006 4,006

IL COMPANY B (20)(20) (164,117) 4,522,297 9.15% 6.35% 126,624 126,624

IN COMPANY C (20)(20) (153,572) 6,658,315 3.28% 1.58% 112,858 112,858

MI COMPANY D (20)(20) (155,964) 1,560,779 6.80% 4.20% 40,580 40,580

MN COMPANY E (8)(8) (74,506) 3,334,066 1.43% 0.71% 24,065 24,065

OK COMPANY F (2)(2) (14,411) 458,728 1.20% 0.30% 4,129 4,129

OR COMPANY G (14)(14) (105,615) 967,259 3.00% 2.20% 7,738 7,738

SC COMPANY H (8)(8) (49,670) 549,922 1.81% 0.81% 5,483 5,483

WA COMPANY I (16)(16) (160,601) 4,994,121 0.87% 0.26% 30,464 30,464

WI COMPANY J (20)(20) (143,010) 3,516,192 4.34% 1.76% 90,718 90,718

(112)(112) $1,047,394$1,047,394 Annual Tax SavingsAnnual Tax Savings $446,665$446,665

Where is Unemployment Being Felt and Where is Unemployment Being Felt and Why Have Costs Increased Why Have Costs Increased

Legislative ChangesLegislative Changes

STATESTATE

• 1515 states increasedstates increased taxable wage bases from 2010 vs. 2011

• 26 states increased26 states increased taxable wage bases from 2011 vs. 2012

• Currently, 10 states10 states have reached the maximum level on their Tax Rate Schedule

• A few states have re-released lower 2012 tax rates: FL, NM, UTFL, NM, UT

• Georgia Georgia re-released higher 2012 tax rates

FEDERALFEDERAL

• Since December 2008, 32 states have borrowed over $40 billion$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%lose 0.30% of the FUTA tax credit annually

• 21 States defaulted in 2011. 16 are expected to default in 2012

2011/12 Taxable Wage Base Increases2011/12 Taxable Wage Base Increases

StateState 2011 Taxable Base2011 Taxable Base 2012 Taxable Base2012 Taxable Base

AlaskaAlaska 34,600 25,800

ColoradoColorado 10,000 11,000

FloridaFlorida 7,000 8,500

HawaiiHawaii 34,200 38,800

IdahoIdaho 33,300 34,100

IllinoisIllinois 12,740 13,560

IowaIowa 24,700 25,300

KentuckyKentucky 8,000 9,000

MichiganMichigan 9,000 9,500

MinnesotaMinnesota 27,000 28,000

MontanaMontana 26,300 27,000

NevadaNevada 26,600 26,400

New HampshireNew Hampshire 12,000 14,000

New JerseyNew Jersey 29,600 30,300

2011/12 Taxable Wage Base Increases2011/12 Taxable Wage Base Increases(Continued)

StateState 2011 Taxable Base2011 Taxable Base 2012 Taxable Base2012 Taxable Base

New MexicoNew Mexico 21,900 22,400

North CarolinaNorth Carolina 19,700 20,400

North DakotaNorth Dakota 25,500 27,900

OklahomaOklahoma 18,600 19,100

OregonOregon 32,300 33,000

Rhode IslandRhode Island 19,000 19,600 / 21,100

South CarolinaSouth Carolina 10,000 12,000

South DakotaSouth Dakota 11,000 12,000

UtahUtah 28,600 29,500

VermontVermont 13,000 16,000

Virgin IslandsVirgin Islands 22,600 23,700

WashingtonWashington 37,300 38,200

WyomingWyoming 22,300 23,000

Final ThoughtsFinal Thoughts

Business Flow ProcessBusiness Flow ProcessBest Practice StandardBest Practice Standard

#1 Correctly Identify

Separation

#2 Analyze the

Viability

#3Complete Forms & Timely

Communicationw State

#4Reinforce Consistent

Behavior w State

Business Process RecommendationsBusiness 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)

UI LinksUI Links

• TN Employee Handbook - http://www.tn.gov/labor-wfd/Employers/forms/emphand00.pdf

• SIDES - • UWC – www.uwcstrategy.org• AUTO – www.autax.org• ITSC -

Barnett AssociatesBarnett AssociatesCast & Crew

Jared S. ValeDirector, Strategy & Compliance

Barnett Associates, Inc.Barnett Associates, Inc.61 Hilton Ave

Garden City, NY 11530Phone (516) 750-7037

jvale@barnettassociates.com