View
0
Download
0
Category
Preview:
Citation preview
Confidential and Proprietary
ECONOMIC UPDATE
October 17, 2019 2019 Rocky Mountain Payroll Conference
Impact on Unemployment Insurance Taxes
Confidential and Proprietary 2
Notice/Disclaimer
The information provided herein is intended as general guidance and is not intended to convey specific tax or legal advice.
This information is intended for the benefit of conference attendees and must not be shared with third parties.
The views expressed are those of the presenter(s) and do not necessarily reflect official positions of Equifax.
This presentation is © 2019 Equifax, Inc. All rights reserved.
Confidential and Proprietary 3
Presenter
Thomas Mudd Account Executive, Employment Tax Services
Equifax Workforce Solutions
thomas.mudd@equifax.com (314) 684-2476
Confidential and Proprietary 4
How the UI System Works
Economic Factors Impacting UI Rates
Solvency of the UI System
Efficiency of the System
Unemployment Tax Management
The President’s Budget
Q&A
October 17, 2019 Today’s Agenda
Confidential and Proprietary
HOW THE UI SYSTEM WORKS
5
Confidential and Proprietary 6
How the Unemployment Insurance System Works
During the Great Depression of the 1930s, millions of workers lost their jobs and faced suffering and hardship.
To prevent such an economic disaster, a nationwide program of unemployment compensation was established. Through the Federal Unemployment Tax Act (FUTA), every state must have such a program.
Unemployment compensation benefits provide temporary income to supplement wages lost to workers who have been separated from employment through no fault of their own and are able and available for work.
The unemployment compensation system is maintained and controlled by two separate entities - the state employment agencies and the federal government. Each has responsibility for various aspects of the program.
Benefits are paid and the program is administered according to state law. Each state has its own unemployment laws and regulations governing the tax structure, benefit eligibility requirements, benefit amounts and disqualification provisions.
Confidential and Proprietary 7
How the Unemployment Insurance System Works
The federal government, through Federal Unemployment Tax Act (FUTA) taxes, finances state and federal administrative costs, pays 50% of extended benefits and provides loans to states that have exhausted their unemployment compensation funds. In addition, the federal government oversees the individual state unemployment laws by developing guidelines to which the states must conform.
Unemployment compensation is the only business tax which can be controlled by the employer. In most states, unemployment benefits are funded 100% by employers. Employers pay a tax based on their payroll and past unemployment experience. Each employer is assigned a state “account.” All unemployment taxes paid by an employer, including any voluntary contribution amounts, are credited to its account. Likewise, any benefits collected by former employees are charged against the employer’s account. If more contributions are paid into the account than benefits charged against it, the employer’s unemployment tax rate may decrease. If the account receives more charges than contributions, the employer’s tax rate may increase.
Confidential and Proprietary 8
Claims and Tax Management: It Takes a Team
TAX RATE ASSIGNMENT
CLAIMS MANAGEMENT
TAX MANAGEMENT
CLAIM
APPEAL
HEARING
BENEFIT CHARGE
VOLUNTARY CONTRIBUTION
JOINT ACCOUNT
MERGER, ACQUISITION, REORGANIZATION
TAXES
%
Confidential and Proprietary
ECONOMIC FACTORS IMPACTING UI TAX RATES
9
Confidential and Proprietary
Economic Factors Impacting SUI Tax Rates
$5,288 Average benefit paid per
Initial Unemployment Claim (2Q 2019)1
12.54% National Annual Benefit Charge
Overpayment Rate (FY 06/30/2018)5
$63,408,971 Title XII Loans Outstanding – Virgin Islands
(09/05/2019)4
15 Average Weeks a
Claimant Draws Unemployment (2Q 2019) 1
1 States Facing FUTA Tax
Increases in 2019 (as of 06/17/2019)4
3.7% National Total
Unemployment Rate (August 2019)3
Source (updated on 09/05/2019): 1. U.S. DOL Data Summary (Q1 2019) 2. U.S. DOL 2018 Significant Measures of SUI Tax Systems (March 2019) 3. Bureau of Labor Statistics Monthly Current Population Survey 4. Treasury Direct Title XII Advance Activities Schedule 5. U.S. DOL Benefit Accuracy Measurement Report 6. 2019 State Unemployment Insurance Trust Fund Solvency Report
$1,348,468 Title XII Loan Interest – Virgin Islands
(accrued/billed as of 09/05/2019)4
$293 Average Tax Cost Per Employee
(2018)2
24 Underfunded state trust funds
(01/01/19)6 133% Amount of each benefit paid that employers
must contribute to their state trust fund (2Q 2019) 1
Confidential and Proprietary 11
The U.S. Unemployment (Jobless) Rate is at a near 50-Year Low
Source: U.S. Department of Labor
Confidential and Proprietary 12
Prior to the Great Recession, most states were experiencing unemployment rates between 4.0 and 7.0%
0.0% - 3.9% TUR (5 Jurisdictions)
4.0% - 5.9% TUR (22 Jurisdictions)
6.0% - 7.0% TUR (12 Jurisdictions)
7.1% - 9.9% TUR (12 Jurisdictions)
10% > TUR (1 Jurisdiction)
CT DC DE MA MD NH NJ PR RI VT
WA
OR
CA
NV
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC
KY
TN
WV VA
ME
HI
AK
Jurisdictions include 50 U.S. States, DC and PR Source: U.S. Department of Labor Fourth Quarter 2008 The Total Unemployment Rate (TUR) is the rate computed by dividing Total Unemployed by the Civilian Labor Force. Source: Bureau of Labor Statistics
Total Unemployment Rate December 2008
Confidential and Proprietary 13
0.0% - 3.9% TUR (35 Jurisdictions) 4.0% - 5.9% TUR (15 Jurisdictions) 6.0% - 7.9% TUR (1 Jurisdiction) 8.0% - 8.9% TUR (1 Jurisdictions) 9.0% - 9.9% TUR (0 Jurisdictions) > 10% TUR (0 Jurisdictions)
CT DC DE MA MD NH NJ PR RI VT
MT
AK
WA
OR
CA
NV
HI
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC
KY
TN
WV VA
ME
Total Unemployment Rate April 2019 (U.S. rate was 3.6%)
Jurisdictions include 50 U.S. States, DC and PR Source: U.S. Department of Labor April 2019 The Total Unemployment Rate (TUR) is the rate computed by dividing Total Unemployed by the Civilian Labor Force. Source: Bureau of Labor Statistics
Unemployment rates in a majority of states are now at or below 3.65%
Confidential and Proprietary 14
Initial Claims
Initial Claims – Any notice of unemployment filed (1) to request a determination of entitlement to and eligibility for compensation or (2) to begin a second or subsequent period of eligibility within a benefit year or period of eligibility. Interstate claims are counted in the paying state.
Source: U.S. Department of Labor
Confidential and Proprietary 15
Average Duration
Average Duration – The number of weeks compensated for the year divided by the number of first payments.
Source: U.S. Department of Labor
Confidential and Proprietary 16
Exhaustions (In Thousands)
Exhaustions – Number of claimants drawing the final payment of their original entitlement for a given program.
Source: U.S. Department of Labor
Confidential and Proprietary 17
State unemployment trust fund balances are improving from a low of -$39.46 billion (In Billions)
Source: U.S. Department of Labor Total State Trust Fund Balances – Total Title XII Loan Balances= Net State Trust Fund Balances
Confidential and Proprietary 18
Average state unemployment taxable wage bases have increased every year since 2005 to allow states to increase revenue
Average State Unemployment Wage Base
Confidential and Proprietary 19
Average SUI tax rates have declined after the Great Recession and have dipped below pre-recessionary levels
Source: U.S. Department of Labor, Bureau of Labor Statistics 1 – U.S. DOL estimate for 2018
Average State Unemployment Tax Rates
Confidential and Proprietary 20
Average annual SUI tax cost per employee has decreased by 40% since the height of the Great Recession
Unemployment Cost Per Employee
Unemployment costs have decreased $193 per employee over the past 6 years.
States compensated for increased claims through higher taxes
Annual unemployment cost per employee has decreased to $293
Unemployment tax cost per employee rose to a high of $486 at the peak of the Great Recession
Increases in annual taxable wage bases, increase the amount of tax paid
Source: U.S. DOL, Office of Unemployment Insurance, Division of Fiscal and Actuarial Services, Significant Measures of SUI Tax Systems for each respective year.
Confidential and Proprietary 21
Equifax UI Trust Fund Review (10+ Years)
Source: Complied from U.S. Department of Labor UI Data Summary
Confidential and Proprietary 22
SUI Tax Rates in 2019 and Beyond – U.S.
Confidential and Proprietary
SOLVENCY OF THE UI SYSTEM
23
Confidential and Proprietary 24
States continue to replenish unemployment reserves after deficits during the Great Recession
Source: Compiled from U.S. Department of Labor UI Data Summary, 12 month rolling period (in thousands)
Unemployment benefits spiked during recession
Unemployment tax revenues (and tax rates) continue to trend downward keeping just above benefits being paid out
U.S. Tax Revenues vs. Benefit Payments (000s)
Confidential and Proprietary 25
Source: U.S. DOL, SUI Trust Fund Solvency Report for 2019 (issued February 2019) 1 Represents the Average High Cost Multiple (AHCM), which is measured as the Reserve Ratio (Trust Fund as a % of Total Wages) at the end of the calendar year immediately preceding the report year, divided
by the Average High Cost Rate. The Average High Cost Rate is the average of the three highest calendar year benefit cost rates in the last 20 years (or a period including three recessions, if longer).
Key Driver of SUI Tax Rates: Trust Fund Solvency Minimum Adequate Solvency Level (01/01/19)
Average High Cost Multiple (“AHCM”)1
Confidential and Proprietary 26
Despite improving trust fund balances, 24 states are not considered adequately funded
Average High Cost Multiple1 As of January 1, 2019
Jurisdictions include 50 U.S. States, DC, PR, and VI Source: U.S. DOL, SUI Trust Fund Solvency Report for 2019 (issued March 2019) 1. Average High Cost Multiple (AHCM) - a standard measure of trust fund solvency used by the U.S. Department of
Labor. A multiple of 1.00 indicates the state trust fund is sufficiently solvent.
Insolvent (≤ 0.00) - 1 Jurisdictions Higher Risk (0.01 - 0.50) - 9 Jurisdictions Lower Risk (0.51 - 0.99) - 14 Jurisdictions Solvent (≥ 1.00) - 29 Jurisdictions
AK
WA
OR
CA
NV
HI
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC
KY
TN
WV VA
ME
CT DC DE MA MD NH NJ PR RI VI VT
Confidential and Proprietary 27
Source: U.S. DOL, Significant Measures of State Unemployment Insurance Tax Systems (issued March 2019) 1 The Minimum Adequate Level of Financing is calculated as the tax rate equal to the amount needed to cover a state’s total benefit payments (average level of last ten years) plus a solvency amount
[difference between a state’s current trust fund level (including loans)] and the recommended minimum adequate level [AHCM of 1.0 divided by five (for the increment over the next five years].
Key Driver of SUI Tax Rates: Trust Fund Solvency Minimum Adequate Financing Level (01/01/19)
Percent Difference of State Average Tax Rate from State Minimum Adequate Financing Rate (MAFR)1
States with an Avg. Tax Rate above a MAFR States with an Avg. Tax Rate below a MAFR
Confidential and Proprietary 28
Outstanding Loans Title XII Loans and Private Loans as of 01/01/19
Confidential and Proprietary
EFFICIENCY OF THE SYSTEM
29
Confidential and Proprietary 30
FY 2018 Estimated Overpayments - $3.50 Billion
FY 2017 Estimated Overpayments - $3.71 Billion
FY 2016 Estimated Overpayments - $3.42 Billion
FY 2018 Estimated Underpayments - $115.9 Million
FY 2017 Estimated Underpayments - $120.4 Million
FY 2016 Estimated Underpayments - $142.6 Million
Source: U.S. Department of Labor – Benefit Accuracy Measurement Report for respective years.
Unemployment benefit overpayments remain a significant challenge
Confidential and Proprietary
Allocation of $3.5B in Benefit Overpayments
13%
31
12.5%
40.5%
26.7%
15.6%
6.1%
Source: U.S. Department of Labor – Benefit Accuracy Measurement Report for respective years.
Confidential and Proprietary
The Impact on Employers:
$3.50 billion in improper benefits
13%
Benefit Overpayments
* Source: U.S. DOL, Benefit Accuracy Measurement Report for Fiscal Year Ended 06/30/18. ** Source: U.S. DOL, 2016 average cost = avg. weekly benefit payment x average length of claim x replacement cost multiple (exact cost is dependent on state-specific parameters)
32
How does this impact you? Depending on your state(s), the potential impact for a single improper unemployment claim is between $3,061- $13,416**
12.5%
Confidential and Proprietary 33
Overpayment Cause Definitions
Work Search: Failure to actively seek employment.
Benefit Year Earnings: Claiming UI benefits after returning to work or failure to accurately report earnings.
Separation Issues: Ineligible due to voluntarily quitting employment or discharge for cause.
Able + Available: Ineligible due to not being able to work or available for work.
Base Period Wages: Error in calculating claimant's benefit based on wages earned prior to period of unemployment.
Employment Service (ES) Registration: Failure to register for referral to work or reemployment services.
Source: U.S. Department of Labor – Benefit Accuracy Measurement Report for respective years.
Confidential and Proprietary 34
Improper benefit charges remain elevated and represent annual losses of over $3.50 billion nationwide
0.0% - 4.9% (6 Jurisdictions) 5.0% - 7.9% (6 Jurisdictions) 8.0% - 11.9% (20 Jurisdictions) 12.0% - 14.9% (8 Jurisdictions) 15.0% -19.9% (6 Jurisdictions) > 20% (6 Jurisdictions)
Jurisdictions include 50 U.S. States, DC and PR Source: U.S. Department of Labor 2018 Benefit Accuracy Measurement Report
AK
WA
OR
CA
NV
HI
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC
KY
TN
WV VA
ME
CT DC DE MA MD NH NJ PR RI VT
Benefit Charge Overpayment Rate Fiscal Year Ended June 30, 2018
Confidential and Proprietary
State FUTA Credit
Reduction
BCR Add-On
Total FUTA Credit Reduction
Effective Base
FUTA Rate
2019 Effective
FUTA Tax Rate California(1) 0.0% 0.0% 0.0% 0.6% 0.6% Virgin Islands(2) 2.7% 1.1% 3.8% 0.6% 4.4%
35
(1) California fully repaid its Title XII loan in 2018.
(2) Virgin Islands has applied for relief from the “BCR” Add-On each year it has applied and been granted such relief.
FUTA Credit Reduction: Applicable in states following their second consecutive January 1 with an outstanding Title XII loan. Employers in an impacted state lose 0.3% of the 5.4% standard credit for each year the Federal Title XII loan remains outstanding (i.e., 0.3%, 0.6%, 0.9%, 1.2%, 1.5%, etc.).
Benefit Cost Rate/Ratio (“BCR”) Add-On: Applicable in states following their fifth consecutive January 1 with an outstanding Title XII loan. States can request a waiver by submitting a request to the U.S. DOL by July 1 of each respective year. The U.S. DOL granted waivers to all states that applied in 2018.
Solvency Concerns: Potential 2019 FUTA Tax Rates
Source: U.S. Department of Labor (U.S. DOL); as of January 11, 2019
Confidential and Proprietary 36
Efficiency of SUTA Dumping Detection
Source: Latest available information from the Employment and Training Administration (U.S. DOL) UI Handbook No. 401, Items 59 and 61 on the ETA 581 reports for CY 2018. • Mandatory Transfers: State forced a transfer of experience as a result of transfers of workforce between legal entities • Net amount charged to employers as a result of the forced transfer of experience
Confidential and Proprietary
UNEMPLOYMENT TAX MANAGEMENT
37
Confidential and Proprietary 38
Unemployment Tax Rate Calculations
AK
WA
OR
CA
NV
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC
KY
TN
WV VA
ME
HI
Jurisdictions include 50 U.S. States, DC and PR * 2015 – Switch to three year benefit ratio calculation ** 2011 – Switch to benefit ratio calculation
Reserve Ratio (30 jurisdictions) Benefit Ratio (17 jurisdictions) Combined Rate Formulas (2 jurisdictions) Benefit Wage Ratio (2 jurisdictions) Payroll Variation (1 jurisdiction)
CT DC DE MA MD NH NJ PR RI VT
WA
OR
CA
NV
AZ NM*
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
NY
PA
NC
SC**
KY
TN
WV VA
ME
AK
Confidential and Proprietary 39
Computation Factors Impact on SUI Rates
Factor Reserve Ratio State Benefit Ratio State
Charges Increase Increase Increase
Charges Decrease Decrease Decrease
Taxable Payroll Increase Increase Decrease
Taxable Payroll Decrease Decrease Increase
Reserve Balance Increase Decrease N/A
Reserve Balance Decrease Increase N/A
Confidential and Proprietary 40
How SUI Tax Rates Work Employer | State | Economic Variables
Variables Impacting UI Tax Rates Employer Variables
Current and projected payrolls (gross and taxable)
UI claim and benefit charges activity
Contributions paid during rating period
Current and contemplated M&A activity
Reserve account balances
State Variables
Updates to UI rating formulas and tables
Imposition of interest assessments
Anticipated changes to taxable wage bases
Impacts of recent/pending legislation
Economic Variables Broad economic trends
National and state unemployment trends
Title XII loans and FUTA credit reductions
Legislative responses to UI trust fund solvency
Sample Benefit Ratio
3 Yr. Benefit Charges 3 Yr. Taxable Payroll
Sample Reserve Ratio
Ending Reserve Balance* Average Taxable Payroll
=
=
* Cumulative total of all contributions/taxes paid-in less all benefits paid out.
October 1 October 1 October 1 October 1 October 1 October 1
2013 2014 2015 2016 2017 2018
July 1 July 1 July 1 July 1 July 1 July 12013 2014 2015 2016 2017 2018
2017 Benefit Charges & Taxable Payroll
2018 Benefit Charges & Taxable Payroll
2019 Benefit Charges & Taxable Payroll
July 1 July 1 July 1 July 1 July 1 July 12013 2014 2015 2016 2017 2018
2017 Average Taxable Payroll
2018 Average Taxable Payroll
2019 Average Taxable Payroll
2017 Reserve Balance
2018 Reserve Balance
2019 Reserve Balance
Confidential and Proprietary 41
Voluntary contributions can be an effective strategy in reducing unemployment taxes
Additional considerations Employee population Mergers, acquisitions or reorganizations Multiple bracket reductions Expected increases and decreases in taxable payroll
States Allowing Voluntary Contributions
Arkansas Arizona Colorado Georgia Indiana Kansas Kentucky Louisiana Maine
Massachusetts Michigan Minnesota Missouri Nebraska North Carolina North Dakota New Jersey New York
Ohio Pennsylvania Rhode Island South Dakota Texas Washington Wisconsin West Virginia
State Taxes
Administrative Errors
Voluntary Contributions
Benefit Payments
Confidential and Proprietary 42
Joint account formation can be an effective strategy in reducing unemployment taxes
Planning and design Define states allowing Joint Account option Review legal entity structure Evaluate unemployment tax savings Analyze all possible rate combinations Compliance requirements
– Review of state statute – Duration and filing deadlines – Dissolution provisions – Common ownership definitions
Implementation File compliance documents timely
Post implementation Verification of combined tax rate assignments Protest of incorrect determinations Validation of tax savings achieved Annual review for dissolution and modification
Confidential and Proprietary 43
Tax Savings Strategies: Reduce Your UI Burden
VC only (18 Jurisdictions) JA only (4 Jurisdictions) Both VC and JA (5 Jurisdictions) Not applicable (23 Jurisdictions) VC, JA, and PVE (1 Jurisdiction) VC and NWO (1 Jurisdiction) VC, JA, and NWO (1 Jurisdiction)
CT DC DE MA MD NH NJ PR RI VI VT
Jurisdictions include 50 U.S. States, DC, PR, and VI Joint Accounts (JA), Voluntary Contributions (VC), Negative Write-Offs (NWO), and Payroll Variations Elections (PVE)
AK
WA
OR
CA
NV
AZ NM
TX
OK AR
LA
FL
GA AL MS
ID
MT
WY
UT CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL IN OH
PA
NC
SC
KY
TN
WV VA
ME
HI
NY
Beginning with calendar year 2018, CT will no longer allow the formation of joint accounts.
Confidential and Proprietary
THE PRESIDENT’S BUDGET
44
Confidential and Proprietary 45
UI Tax Increases and Solvency Requirements
Establish a minimum solvency standard: Applies the Federal Unemployment Tax Act (FUTA) credit reduction
rules Applies to states that have an Average High Cost Multiple (AHCM)
of less than 0.5 on two or more consecutive January firsts.
The total of the tax increase/solvency measures over a ten-year period is projected to generate an additional $9.2 Billion. Could impact individual employers with adequate “reserves”
Confidential and Proprietary 46
States at Risk for FUTA Tax Increases
Employers in the following states would be at risk most immediately: California Connecticut Illinois Indiana Kentucky Massachusetts New York Ohio Texas Virgin Islands West Virginia
Confidential and Proprietary 47
States at Risk for FUTA Tax Increases
Another group of states currently with balances below 1.0 AHCM could be at risk to more quickly trigger FUTA credit reductions early in an economic downturn. Arizona Delaware Georgia Maryland Minnesota Missouri Nevada New Jersey North Dakota Rhode Island South Carolina Tennessee Virginia Wisconsin
Confidential and Proprietary 48
Paid Parental Leave
Provide at least six weeks of paid family leave. The UI system is no longer specified as the system to use as a funding source (like in the FY 2019 budget proposal). The proposal now allows States to establish paid parental leave programs in a way that is “most appropriate for their workplace and economy.” The budget continues to show that revenue to offset the cost of the program would come from increased UI solvency taxes to be paid by employers and the UI system. The budget assumes that such a parental leave program would cost approximately $18.75 billion over 10 years.
Confidential and Proprietary 49
Questions
Thomas Mudd Account Executive, Employment Tax Services
Equifax Workforce Solutions
thomas.mudd@equifax.com (314) 684-2476
Recommended