Thursday, December 15, 2011

Rollback: Reducing the Burden of Unemployment Insurance

I am sponsoring three unemployment insurance related bills this year.  Two of them are technical in nature and bring Utah's code in line with Federal law regarding reporting procedures and accounting practices.  I won't bore you with the details.

The other bill is more substantive and should be a blessing to taxpayers this year.  First though, let me give you some background on Utah's Unemployment Insurance (UI).

UI is derived from a formula that is written in the state code.  The final number that determines the Overall Contribution rate paid out by any employer is determined by several factors that combine together and produce a figure.  Here are a few components of that:

1.  Employer Contribution Rate - This part of the equation equals all the UI benefits paid out on behalf of the employer over a four year period divided by all the taxable wages of the employer for that same period.  If you are a new business and have no employment history, then the rate you pay will be the average of rates paid by businesses in your industry until you get enough history behind you.

2.  Social Contribution Rate - This rate is derived by calculating all the UI benefits paid out statewide over a four year period and divide it by all the taxable wages in the state over that same period.

3.  Reserve Factor - This is a multiplier that is used like a gas pedal or brake pedal to keep the UI fund solvent.  The fund is designed to hold 18 to 24 months of benefits at any given time.  Ideally, the reserve factor is set at 1.0.  If there is too much money in the account the reserve factor reduces to 0.5.  If there isn't enough in the fund, the rate can change to 1.5 or 2.0 depending on the circumstances.

Here is the formula found in statute to determine what you pay in UI:

Employer Contribution Rate  x  Reserve Factor + Social Contribution Rate  = 
Overall Contribution Rate

The bill that I am sponsoring dose a couple things:

A.  It places a cap on the Employer Contribution Rate so that it cannot exceed 7% for 2012.  Currently that cap is at 9%.  

B.  It caps the Social Contribution Rate at 0.4% for 2012.  Currently, that is scheduled to be 0.5% if this bill does not pass. 

So what is the benefit? Well, Utah's maximum rate is the second highest in the Union.  Maintaining the current course places our business recruiting efforts at a considerable competitive disadvantage.  Encouragingly, it is also estimated that these changes will put an additional $26.4 million in the pocket of Utah taxpayers this year.

UPDATE 12/20/2011 - Here are the links to the bills:

HB22 - Centralized New Hire Registry Act Amendments
HB23 - Special Administrative Expense Account Amendments
HB30 - Unemployment Insurance Amendments
If you have any questions or concerns, please contact me.


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