If you pay employees in a FUTA credit reduction state, your unemployment costs have been steadily rising for the past few years, but tax year 2014 brings even more unemployment credit reductions in the form of Benefit Cost Rate Add-on. In 2014, states will also enforce Section 252 of the Trade Adjustment Assistance Extension Act of 2011 which prevents relief from charges for unemployment benefits that were improperly paid due to an employer’s inadequate/late response to requests regarding an employee’s eligibility for unemployment.
Take heart, though. Shared-work plans and some new legislation in 2014 may help reduce your unemployment costs.
Benefit Cost Rate Add-On
Since 2013 was at least the fifth consecutive January 1 of an outstanding federal loan balance for 12 of the 13 FUTA Credit Reduction states, employers in those states may be liable for the benefit cost rate add-on credit reduction in 2014.
- New York
- North Carolina
- Rhode Island
Delaware is considered the 13th state, but is only in its fourth year of loan. South Carolina is in its sixth year of loan and may also have a benefit cost rate add-on for 2014 even though SC did not have credit reductions from 2011 to 2013 due to a credit-reduction avoidance plan.
Example of Increasing Costs
To give you an idea of the potential costs involved, we can take a look at Indiana. Like SC, Indiana is in the sixth year of loan, but applied for a fifth year waiver in 2013 which was approved. If it had not been approved, employers would have faced a benefit cost rate add-on of up to $98 per employee in addition to the 2013 credit reduction of 1.2%, up to $84 per employee. The actual credit reduction of 1.2% plus the regular FUTA rate of 0.6% meant that Indiana employers paid FUTA of up to $126 per employee in 2013, but the add-on would have increased that to up to $224 per employee.
Employers in a state with a federal unemployment loan balance for at least five years, with a balance on November 10, 2014, and with neither a credit-reduction avoidance nor a fifth-year waiver from the Labor Department, may face a benefit cost rate add-on with a higher cost for each employee than they would face due to a credit reduction of 1.2% like employers in states in the fifth year of borrowing and 1.5% for sixth-year borrowers. For a state’s credit reduction relief application to be approved, the state must prove solvency and meet certain revenue targets.
In 2014, Ohio and Wisconsin join 24 other states and the District of Columbia in enabling employers to set up shared-work plans. These work-sharing programs are also being considered in Hawaii, Illinois, Indiana, Nebraska, North Carolina, Virginia, and West Virginia. Work-sharing or short-time compensation plans allow employers to avoid layoffs by reducing employees’ hours and pay. Employees participating in qualified plans are eligible for limited unemployment benefits to offset the reduced wages.
Shared-work plans reduce benefit costs charged to employers because there may be fewer reduced hours among shared-work employees than laid-off employees.
If your state is expected to be hit with high unemployment costs start taking advantage of shared-work plans now to keep expenses down in 2014.