Unemployment Compensation Issues for Municipal Employers
Anthony T. Bowser
It is no secret that unemployment has been on the rise over the past year, with rates rising to 8.9 percent in December 2009. While dealing with the Unemployment Compensation (UC) issues that come with such high unemployment rates are difficult for all employers, municipal employers need to pay special attention due to the way UC claims are charged to their account.
Private (contributory) employers pay UC Tax to cover the benefits charged to their accounts. Municipal employers and certain non-profits may elect the reimbursable method of payment. With this method employers repay the UC Fund on a dollar-for-dollar basis for all benefits charged to their accounts. In other words, if a former employee who has not worked for any other employer during the base year files a UC claim and receives $500 per week in UC benefits, the municipal employer must reimburse the fund $500 per week for the duration of the employee’s claim.
Many municipalities who do not have many UC claims filed against them risk paying dollar-for-dollar reimbursements because it is less costly than paying insurance on a regular basis. However, even those municipalities who do not typically have many UC claims filed against them should take precautions to limit their exposure for a number of reasons.
First, UC benefits have recently been extended under various state and federal legislation. This means that the total claim can potentially be much larger than under the typical 26 week maximum benefit. Unlike non-profit reimbursable employers who are only required to pay one-half of the extended benefits charged to their accounts, reimbursable employers are required to pay the full amount of regular benefits attributable to their employ, as well as the full amount of extended benefits.
Second, a municipal employer will likely be required to reimburse the UC Fund for claims where it is a base year employer, even if not the separating employer. For example, where an employee leaves the municipal employer to take another job and is shortly thereafter laid off, the original municipal employer is on the hook for a large portion of the UC benefits. And, unlike contributory employers, reimbursable employers may not automatically request relief from charges in such an instance. Reimbursable employers are not eligible for relief from charges in a calendar year unless the employer has been approved for an election to participate in the relief from charges option filed in the previous year. In order to be eligible, a reimbursable employer must complete the necessary election forms, pay a nonrefundable solvency fee assessed by the Office of Unemployment Compensation Tax Services (UCTS), and file all quarterly tax reports through the second quarter of the calendar year preceding the year of election.
Third, once a municipality elects reimbursable status, it may not immediately switch to the contributory method. An employer may terminate reimbursable coverage after a period of not less than two taxable years and convert their status to that of a contributory employer only at the end of a calendar year.
In summary, municipalities should carefully evaluate whether they want to elect reimbursable employer status. Rising unemployment claim numbers, coupled with longer benefit periods and the inability to automatically request relief from charges may equate to hefty UC charges for municipalities. Municipal employers should also pay careful attention in contesting all claims from separating employees where applicable in order to limit their exposure.
