Post on 03-Jul-2020
Confidential and Proprietary
EMERGING ISSUES IN STATE UNEMPLOYMENT
October 10, 2019
Virginia Statewide Payroll Conference
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 webinar is intended for the education and benefit of
our customers and potential customers. This webinar
cannot be shared with third parties.
The views expressed are those of the discussion leaders
and do not necessarily reflect official positions of Equifax.
This presentation is © 2019 Equifax, Inc. All rights
reserved.
Confidential and Proprietary 3
Presenter Susan Dermody
Account Executive
Employment Tax Consulting
(314) 684-2152
susan.dermody@equifax.com
Confidential and Proprietary
Economic Update
Unemployment Claims
Update
Federal Unemployment
Tax Update
State Unemployment
Tax Update
M&A Update
Summary
Q&A
October 10, 2019
TODAY’S AGENDA
Confidential and Proprietary
ECONOMIC UPDATE
5
Confidential and Proprietary 6
The U.S. Unemployment (Jobless) Rate is at a near 50-Year Low
Source: U.S. Department of Labor
Confidential and Proprietary 7
The costs of unemployment remain escalated despite an improved economic environment
$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
15.0 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 06/18/2019): 1. U.S. DOL Data Summary (Q2 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
- - The four week moving average needs to drop below 450,000 and start moving towards 400,000 (or less) for the U.S. to start experiencing employment recovery
As of 8/31/19
Source: Compiled from US DOL UI Data Summary and US DOL Unemployment Insurance Weekly Claims News Releases
8
Four Week Moving Average of Initial Claims (Seas. Adj.)
Initial unemployment claims activity has steadily declined since its peak in 2009 and is starting to level off
Confidential and Proprietary 9
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 10
0.0% - 3.9% TUR (34 Jurisdictions)
4.0% - 5.9% TUR (16 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 June 2019
Jurisdictions include 50 U.S. States, DC and PR
Source: U.S. Department of Labor June 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 3.7%
Confidential and Proprietary 11
States are replenishing unemployment reserves after deficits during the 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 12
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 13
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
UNEMPLOYMENT CLAIMS UPDATE
14
Confidential and Proprietary 15
Unemployment tax rates can be significantly impacted by both claims and tax management
TAX RATE
ASSIGNMENT
CLAIMS
MANAGEMENT
TAX
MANAGEMENT
CLAIM
APPEAL
HEARING
BENEFIT CHARGE
VOLUNTARY
CONTRIBUTION
JOINT ACCOUNT
MERGER, ACQUISITION,
REORGANIZATION
TAXES
%
Confidential and Proprietary 16
Unemployment Cost Management requires significant attention from employers
States are focusing on
UI Integrity
Unemployment Costs
are Significant
UC Management is a
complex process
Average cost is
$293 per employee
Benefits drawn for
average of over
15.0 weeks
Average benefit
paid is $5,288
$3.5B (12.54%) in
UI tax
overpayments
Implementation of
SIDES
New compliance
legislation and
penalties
Guidelines and
regulations differ
by state
Requires time,
effort and expertise
Diverts focus from
core activities
States have shifted responsibility for UI Integrity to employers
Confidential and Proprietary 17
Unemployment claim liability remains with an employer for up to 18 months after initial employee separation
1Q
2011
2Q
2011
3Q
2011
4Q
2011
1Q
2012
2Q
2012
Last Employer Claim – The claim notice sent to the most recent employer from which the employee has separated.
Base Period Claim – The claim notice sent to each employer for which the claimant worked during the base period.
Base Period earnings determine weekly benefit amounts and employers chargeable proportionate to wages paid.
Alternative Base Period (if applicable) – Former employees who fail to qualify under the original base period may
qualify under an alternative base period on wages paid during the last four calendar quarters prior to the claim filing date.
1Q
2018
2Q
2018
3Q
2018
4Q
2018
1Q
2019
2Q
2019
Confidential and Proprietary 18
0.0% - 3.9% TUR (34 Jurisdictions)
4.0% - 5.9% TUR (16 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 June 2019
Jurisdictions include 50 U.S. States, DC and PR
Source: U.S. Department of Labor June 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 3.7%
Confidential and Proprietary 19
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 20
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 21
Maximum Duration of UI Benefits (2019)
NOTE: Weeks shown in map are for regular state benefits; no additional weeks of federal benefits are available in any state. The Virgin Islands and Puerto Rico both have 26 weeks of regular unemployment insurance (UI).
SOURCE: Congressional Research Services
A state’s maximum duration can fluctuate based on the jobless rate in the state.
Less than 26 weeks (8 Jurisdictions) 26 weeks ( Jurisdictions) More than 26 weeks (2 Jurisdictions)
CT
DC
DE
MA
MD
NH
NJ
PR
RI
VI
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
28
30
16-26 20
16
12-23
14-20
20
20
20
20-26
Confidential and Proprietary
SIDES Integration
22
As of April 2019
Live
Ready in next 6 months
States have not committed to SIDES
AK
HI
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
VA
ME
NH
RI
MA
DE
MD
CT
VT
NJ WV
PR
Confidential and Proprietary 23
New UI Integrity legislation, enacted in accordance with a recent federal mandate, is in effect for the majority of states
Jurisdictions include 50 U.S. States, DC, PR, and VI
In Effect
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 24
The Impact of UI Integrity
• While claim volumes have been trending down, the same cannot be said for the number of requests for separation details being received.
• The percentage of claims requiring additional separation details increased from prior years.
Additional Investigation
• ALL claim forms now require responses. Prior to UI Integrity, separation such as lack of work, assignment completion, and no protests did not need to be communicated to the state.
• Hearings participation is now needed to attest to the adequacy of information provided.
Response and Participation
• More and more states are issuing new questionnaires relative to the UI process in light of UI Integrity.
• Seven states are issuing new UI Integrity forms with appeal rights, requiring additional handling and investigation.
New Forms
Confidential and Proprietary 25
As states enact their own legislation in response to the federal mandate, some common interpretations have emerged
Timely Response: A “timely response” has been interpreted by most states to be in the range of 7-10 days (similar to previous guidelines).
Adequate Response: While it is clear that information should be provided in response to every question in the request for information relating to the claim (as demonstrated through the SIDES framework), the exact level of detail and documentation required to ensure compliance is more difficult to define. Both employers and their Unemployment Cost Management providers will need to monitor state determinations, including the level of detail that prompts successful appeals, in order to develop a reasonable understanding of state requirements moving forward.
Pattern of Failure: The criteria for sustaining a “pattern of failure” has been more distinctly defined with most states interpreting this as the greater of two or more instances or two percent or more of claims within the prior year.
Confidential and Proprietary 26
The TAAEA of 2011 directs all states to prohibit the relief of unemployment benefit charges
Employers expected to improve quality of information provided to states in initial response vs. perfecting at a later date
Federal mandate does not include loss of appeal rights, although this can be included at the state level
Resulting increases in benefit charges may negatively impact employer UI tax rates moving forward
End of benefit
period
Initial
Charges
Successful
Appeal
Charges discontinued No charge relief
…Week 17+ Week 6 Week 5 Week 4 Week 3 Week 2 Week 1 Week 7…
Confidential and Proprietary
FEDERAL UNEMPLOYMENT TAX UPDATE
27
Confidential and Proprietary 28
State repayment of Title XII loans can significantly impact an employer’s FUTA tax rates
If employer pays state SUI taxes timely and in full, a 5.4% credit is granted
If Federal Title XII loan remains outstanding for two years (as of January 1st), employers in the affected state lose 0.3% of the 5.4% credit (or $21 per employee)
0.3% FUTA credit loss continues for every year the Federal Title XII loan remains unpaid (Example: Year 1 = 0.3%; Year 2 = 0.6%, etc.)
FUTA tax rate FUTA taxable wage base FUTA tax
6.0% $7,000 $420 Per Employee
FUTA tax rate FUTA tax credit FUTA tax rate (less credit)
FUTA tax
6.0% 5.4% 0.6% $42 Per Employee
Confidential and Proprietary
State
FUTA
Credit
Reduction
BCR
Add-On
Total
FUTA Credit
Reduction
Effective
Base
FUTA Rate
2018
Effective
FUTA Tax Rate
California(1) 0.0% 0.0% 0.0% 0.6% 0.6%
Virgin Islands(2) 2.4% 0.0% 2.4% 0.6% 3.0%
29
(1) California has fully repaid its Title XII loan and did so prior to the November 10, 2018 deadline.
(2) Virgin Islands has applied for relief from the “BCR” Add-On as of July 1, 2018, and was 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.
Final 2018 FUTA Tax Rates
Source: U.S. Department of Labor (U.S. DOL); as of November 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% 1.2% 3.9% 0.6% 4.5%
30
(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.
Potential 2019 FUTA Tax Rates
Source: U.S. Department of Labor (U.S. DOL); as of July 2019
Confidential and Proprietary
STATE UNEMPLOYMENT TAX UPDATE
31
Confidential and Proprietary 32
Unemployment costs are impacted by several UI related activities
State Taxes
Administrative Errors
Voluntary Contributions
Benefit Payments
Taxable wage base* Maximum Tax / employee Minimum tax / employee Maximum claim liability
$8,000
$496
$8
$9,828
Virginia 2019 merit rating
A state example: Max: 6.20%
Min: 0.10%
Em
ploy
er r
ate
Confidential and Proprietary 33
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
Average State Unemployment Tax Rates
Confidential and Proprietary 34
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 35
Equifax UI Trust Fund Review (20+ Years)
Source: Complied from U.S. Department of Labor UI Data Summary
Confidential and Proprietary 36
Equifax UI Trust Fund Review (10+ Years)
Source: Complied from U.S. Department of Labor UI Data Summary
Confidential and Proprietary 37
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 38
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 39
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 40
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 41
Employers can reduce unemployment taxes through strategic joint account (common rating) planning
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 42
Utilize tax savings opportunities within each taxing jurisdiction to reduce your UI tax 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
MERGERS AND ACQUISITIONS UPDATE
43
Confidential and Proprietary 44
U.S. M&A News and Trends
U.S. M&A deal activity decreased in August, going down 12.3% with 1,108 announcements compared to 1,263 in July. However, aggregate M&A spending increased.
Over the past 3 months, the sectors that saw the biggest increases in M&A deal activity, relative to the same three-month period one year ago, was: Consumer Services (274 vs. 246)
Finance (513 vs. 485)
Consumer Non-Durables (109 vs. 84)
Electronic Technology (106 vs. 91)
Health Technology (138 vs. 128)
Factset Flashwire US Monthly, September 2019
Confidential and Proprietary 45
Effective M&A management begins with a comprehensive strategic planning process
Confidential and Proprietary 46
Corporate acquisitions via stock purchase require not only a focus on compliance, but to the integration of new ownership as well
Considerations Stock acquisitions result in a change in the shareholder (owner) Underlying business is not impacted by the acquisition
Compliance Jurisdictions will require updates to changes in owners, officers and addresses Payroll systems integration of potentially different pay cycles on employment tax
liabilities/deposit dates
Before After
Employer A
Old owners New owners
Employer A
Confidential and Proprietary 47
Corporate asset acquisitions necessitate addressing a variety of jurisdictional compliance, integration, and payroll reporting issues
Considerations Asset acquisitions typically involve the sale/purchase or a contribution of capital between two parties After the transaction both parties continue to exist – seller retains identity of the predecessor company The acquisition will include the transfer (in whole or in part) of assets (and often employees) to the successor
Compliance Employment tax registrations, status change, experience transfer applications and account closures Form W-2 procedure (standard or alternate) Forms 940, 941, quarterly unemployment tax returns, annual reconciliations including Schedule D Payroll systems integration of potentially different pay cycles on employment tax liability/deposit dates
Employer A
Employer B
Before After
Employer A
Employer B
Widgets Division
Widgets Division
Confidential and Proprietary 48
Statutory mergers and consolidations involve a variety of jurisdictional compliance, integration, and payroll reporting issues
Considerations A merger / consolidation is the combination of two or more employers into a single employer The result of the transaction is only one employer survives The most common type of merger is a statutory merger or liquidation
Compliance Employment tax registrations, status change, experience transfer applications and account closures Required single Form W-2 filed by the survivor Forms 940, 941, quarterly unemployment tax returns, annual reconciliations including Schedule D Payroll systems integration of potentially different pay cycles on employment tax liability/deposit dates
Before After
Employer A
Employer B
Employer A
Dissolved Employer
Employer B
Including Former
Employer A
Confidential and Proprietary 49
Perform an Employment Tax Research and Recovery Review to identify retroactive tax savings associated with historical M&A events
Confidential and Proprietary 50
Effective M&A management is critical to unemployment cost minimization
Utilize cost management strategies Analyze transfer of experience options to obtain most favorable rate available Take advantage of Joint Account and Voluntary Contribution opportunities
Comply with federal and state rules and regulations Including P.L. 108-295; The SUTA Dumping Prevention Act of 2004 Avoid loss of taxable wage base carryover Avoid notices and complications years after the transaction date
Proper processing of unemployment claims Ensure accurate payment of benefits to claimants Ensure benefit charges are assigned to the correct employer
Avoid penalties and interest Delinquent contributions Penalty rate
Confidential and Proprietary 51
Results 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
SUMMARY
52
Confidential and Proprietary 53
Summary
Economic Trends and Trust Fund Solvency – Continue to
impact unemployment taxes
Employment Recovery Continues – 3.70% unemployment
rate June 2019
SUTA Taxes – 2020 rates start to trickle in this month
Tax Rates – Expect rates to level off and begin to increase with the
next recession
State Unemployment Taxes – Use special rating strategies, ensure
compliance with M&A events, and review rate notices carefully
2019 FUTA Tax Increases –Virgin Islands remains
Stay Informed - Tax Updates: http://insight.equifax.com/
Confidential and Proprietary 54
Questions and Answers
For more information please contact:
Susan Dermody
Account Executive
Employment Tax Services
(314) 684-2152
Susan.Dermody@Equifax.com