Equifax workforce solutions€¦ · Unemployment compensation is the only business tax which can be controlled by the employer. In most states, unemployment benefits are funded 100%

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.


Presenter

Thomas Mudd Account Executive, Employment Tax Services

Equifax Workforce Solutions

[email protected] (314) 684-2476

mailto:[email protected]


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


HOW THE UI SYSTEM WORKS

5


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.


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.


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

%


ECONOMIC FACTORS IMPACTING UI TAX RATES

9


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


The U.S. Unemployment (Jobless) Rate is at a near 50-Year Low

Source: U.S. Department of Labor


Prior to the Great Recession, most states were experiencing unemployment rates between 4.0 and 7.0%

0.0% - 3.9% TUR (5 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


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)


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%


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.



Average Duration

Average Duration – The number of weeks compensated for the year divided by the number of first payments.



Exhaustions (In Thousands)

Exhaustions – Number of claimants drawing the final payment of their original entitlement for a given program.



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


Average state unemployment taxable wage bases have increased every year since 2005 to allow states to increase revenue

Average State Unemployment Wage Base


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


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.


Equifax UI Trust Fund Review (10+ Years)

Source: Complied from U.S. Department of Labor UI Data Summary


SUI Tax Rates in 2019 and Beyond – U.S.


SOLVENCY OF THE UI SYSTEM

23


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)


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


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


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


Outstanding Loans Title XII Loans and Private Loans as of 01/01/19


EFFICIENCY OF THE SYSTEM

29


FY 2018 Estimated Overpayments - $3.50 Billion



FY 2018 Estimated Underpayments - $115.9 Million



Source: U.S. Department of Labor – Benefit Accuracy Measurement Report for respective years.

Unemployment benefit overpayments remain a significant challenge


Allocation of $3.5B in Benefit Overpayments

13%

31

12.5%

40.5%

26.7%

15.6%

6.1%



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%


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.



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


Benefit Charge Overpayment Rate Fiscal Year Ended June 30, 2018


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


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


UNEMPLOYMENT TAX MANAGEMENT

37


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)


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


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


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



July 1 July 1 July 1 July 1 July 1 July 12013 2014 2015 2016 2017 2018

2017 Average Taxable Payroll



2017 Reserve Balance




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


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


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.


THE PRESIDENT’S BUDGET

44


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”


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


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


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.


Questions

Thomas Mudd Account Executive, Employment Tax Services

Equifax Workforce Solutions

[email protected] (314) 684-2476

mailto:[email protected]

Documents

Equifax workforce solutions€¦ · Unemployment compensation is the only business tax which can be controlled by the employer. In most states, unemployment benefits are funded 100%