by Joanne Deschenaux, J.D., SHRM senior legal editor

Speaking before a session of the Society for Human Resource Management’s Employment Law & Legislative Conference March 14, 2011, an unemployment insurance (UI) expert presented a bleak picture of UI costs across the country. The following sobering facts were revealed by Douglas Holmes, the president of UWC, a nationwide association that represents the interests of the business community on national unemployment insurance and workers’ compensation public policy issues:

  1. State unemployment taxes increased as a percent of total wages on average by 34 percent from 2009 to 2010 and are expected to increase even more for 2011 and 2012.
  2. Thirty-two states have outstanding federal loans of $43.6 billion. The U.S. Department of Labor (DOL) projects a peak in 2013 of up to 40 states and $65.2 billion.
  3. Interest on loans is charged at the rate of just over 4 percent for 2011. Under federal law, the interest may not be repaid from the state UI taxes, so approximately $1.7 billion will have to be paid from other sources. Employers in 19 states will pay a special assessment to cover this cost (Alabama, Arkansas, Arizona, Colorado, Connecticut, Delaware, Florida, Hawaii, Indiana, Kansas, Michigan, Minnesota, Missouri, New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, and Wisconsin).
  4. The first interest payment from states is due Sept. 30, 2011. Interest continues as long as loans are outstanding.
  5. Federal Unemployment Tax Act (FUTA) increases in borrowing states have begun in Michigan, Indiana and South Carolina, and are projected in 24 states for 2011, costing more than $2 billion in additional FUTA taxes.
  6. Spending on unemployment compensation is at an all-time high, jumping from approximately $31 billion in 2008 to $120 billion in 2009 and $160 billion in 2010.

Impact on HR

Going beyond the numbers, what does this mean for HR? “Congress will focus on this only when they have to,” Holmes said, noting that state and federal UI taxes will continue to rise, which will increase the cost of hiring. In addition, the increased duration of unemployment compensation will continue to be a disincentive to individuals deciding whether to actively seek and accept work available in the labor market, he noted.

Ronald Adler, the president of Laurdan Associates, a consulting firm in Potomac, Md., stressed that HR professionals “need to understand how much UI is costing their individual companies.” In addition to an increase in the cost of hiring, UI-related risks include increased administrative costs and reduced profitability, he said. In addition, UI activity may trigger an audit by the state UI agency as well as by federal agencies, including the Department of Labor, Internal Revenue Service or Immigration and Customs Enforcement.

So what can HR do?

Adler noted that the first step for HR should be to review and verify tax rate notices. Next, ensure that your classifications of employees and independent contractors are correct and ensure that you have properly reported wages—the correct amounts to the correct states, he added.

Next, Adler recommended that HR take steps to protect the company’s experience rating, which impacts the state taxes it must pay. In order to do this, HR professionals should make sure that all UI claims forms are timely and correctly completed. All incorrect determinations and decisions should be appealed. He further recommended that HR attend UI hearings. In addition, he said, HR should notify the state UI agency of rehires and of refusals of job offers.
HR professionals should also look at the broader picture, Adler suggested, and assess hiring procedures and performance management appraisals. Increased effectiveness in performing these tasks may reduce UI claims, he noted. In addition, HR should ensure proper and effective documentation of employment actions and review disciplinary and termination procedures.

And of utmost importance is the training of supervisors and managers, Adler emphasized.
Holmes made the following additional suggestions for HR professionals concerned with the rising costs of providing UI benefits:

  • Work with SHRM and business advocacy groups to explain the impact of increasing payroll taxes on decisions to hire.
  • Explain the practical impact of individuals staying on unemployment compensation for long periods—loss of job skills; disincentive to accept jobs that are open while claiming unemployment compensation.
  • Manage UI claims costs by paying attention to benefit charges, refusals of work, overpayment and fraud.
  • Work with state workforce agencies to identify opportunities for unemployed workers for on-the-job training, internships and customized training that may serve some of your needs while reducing unemployment claims.
  • State and federal unemployment taxes will continue to increase over the next three years and remain at higher rates for at least 10 years on average, Holmes predicted, so this is not a problem that is going to ease anytime soon.

For more information, visit www.shrm.org

SHARE