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New legislation aims to strengthen states unemployment insurance
New unemployment insurance legislation signed by Gov. Rick Snyder just before the holidays includes a bond issue to get Michigan’s unemployment insurance program out of debt to the federal government, plus other changes a veteran labor and employment attorney describes as among “the most broad-based array of changes to the Employment Security Act in years.”
Dick Hooker, a partner at Varnum Law, said the single biggest piece of the legislative package “is the authorization to the state to issue bonds to help pay off the federal debt” Michigan has accrued to keep its unemployment insurance program afloat over the past few years.
The bond bills were sponsored by Sen. Mark Jansen, R-Gaines Township, and will allow Michigan to return the unemployment insurance program to solvency, according to an announcement by Snyder.
The governor said Michigan has the highest per-capita unemployment insurance debt in the nation. The state paid more out in unemployment benefits than it collected from employers who normally finance the system, so Michigan began borrowing from the federal government in 2007 to meet its unemployment benefits obligations.
“Ten years of recession exhausted Michigan’s unemployment fund and forced the state to borrow from the federal government to pay more than $3 billion in jobless benefits,” Jansen said.
“Michigan job providers were facing a 50 percent federal unemployment tax increase to recover that debt. The pro-jobs reforms signed (Dec. 19) by the governor will repay the trust fund’s debt and stop that devastating federal tax hike on Michigan employers,” said Jansen.
“I also ensured the bills were part of a package to stop fraud, waste and abuse in the unemployment system,” he added. “These new laws create a more efficient system, free of debt. This encourages job growth and investment because it lifts burdens off of job creators.”
The total amount owed by Michigan to the federal government is $3.2 billion, according to Snyder’s office.
While the changes in the law tend to be more incremental than monumental, Hooker said they are very broad-based, and the new tax provisions in particular are going to “grab” employers’ attention. Many of the other changes are designed to both toughen disqualification standards and facilitate the state’s recovery of improperly paid benefits from those claimants.
The annual taxable wage base for Michigan employers will increase from the first $9,000 of every employee’s earnings to the first $9,500, with the total tax ranging as high as 10.3 percent of that amount, plus more for the “solvency tax.”
“For individuals employing two or three people, it’s no big deal,” said Hooker. “For individuals employing 3,000 people, you’re talking about some real money.”
There is also a change in the base period (also known as the look-back period) used to calculate the Chargeable Benefits Component, the largest portion of the employer’s tax rate. Currently, that is the previous five years, but in 2012 the look-back period will drop to four years and then drop to three years in 2013.
“My suspicion is (that) in most cases, this will result in a rather immediate tax increase for many employers because you and I both know what’s happened to the economy since 2008,” said Hooker, referring to the major increase in unemployment. A four-year look-back in 2012 would be the period from July 1, 2007, to June 30, 2011 — “lopping off the good experience in 2006, 2007,” before the dramatic increase in unemployment began.
On the other hand, the three-year look-back that will be used starting in 2013 will probably be more beneficial to most employers, as the employment situation is presumed to have been improving from July 1, 2009, to June 30, 2012.
Michigan’s accumulation of un-repaid loans from Uncle Sam to pay its unemployment claims resulted in another addition to the tax paid by some employers: the solvency tax, which is only paid by those employers whose unemployment insurance account balance is negative — meaning the firm has more unemployment benefit claims totals than the annual tax it pays into the account.
For some employers, then, their total unemployment insurance tax can approach 12 percent, according to Hooker. “That’s fundamentally the reason for the bond issue — to wipe out that debt to the federal government, so that employers in Michigan get a break on the additional add-ons (to the unemployment tax).”
Another change to Michigan’s unemployment insurance law is aimed directly at the claimants. After a claimant has collected half of his or her total weeks of entitlement, the claimant must accept any job that pays at least 120 percent of the weekly UI benefit rate. (The maximum benefit has not changed; according to Hooker, it is still $362 per week.)
The definition of and disqualification for “voluntary leaving” has been expanded to include three-day no-call, no-shows, and an employee’s loss of a fundamental job requirement, such as a license or other certification required to perform that job.
In cases of medical-based separations from employment, it will be deemed involuntary only if a claimant obtains a medical professional’s statement that the job is harmful to the claimant; shows no alternative work is available with the employer; and shows no leave of absence is available.
Also, if an individual working two jobs quits the part-time job and later loses the full-time job, any benefits otherwise based on earnings in the part-time job would be charged to the non-chargeable benefits account, and not to the part-time employer’s account.
Benefits paid to a claimant solely on the basis of combining Michigan and out-of-state employment during a base period will be charged to the Non-Chargeable Benefits Account and not the Michigan employer.
Employers will now be able to correct errors on quarterly reporting forms without penalty, if done within 14 days of Unemployment Insurance Agency notification. Also, employers with 25 or more employees will be required to file all quarterly reports electronically beginning Jan. 1, 2013.
According to Hooker, there is a more gradual phase-in of this requirement for smaller employers, some of whom will also be allowed to spread unemployment insurance tax payments out over all four calendar quarters of a given year, as opposed to being hit with larger tax bills in the first and second quarters.
The transfer of base period wages that occurs when an individual resigns employment to accept full-time employment with another employer will now apply to separations occasioned by unions that reassign employees to other contractor employers.
The new changes to Michigan’s unemployment insurance law “reflect the current economic situation, and it reflects the current political majority in Lansing,” said Hooker. “There’s not a lot of good news for (unemployment benefits) claimants in this legislation.”