September 19, 2017
There are several ways that employers can keep their unemployment insurance (UI) tax rate down. First, it is beneficial to learn how the South Carolina Department of Employment and Workforce (“SCDEW”) determines the employer’s experience for tax rate assignment.
Generally, employees are entitled to UI if not working through no fault of their own, including lack of work, reduction of hours, reasons other than cause or misconduct, quit for good cause “in connection with employment,” and substandard performance beyond claimant’s control. SCDEW maintains an account for each employer and records data on unemployment claims to determine the employer’s “experience for rate assignments.” UI benefits paid to an eligible individual will be charged against the account of the most recent employer.
SCDEW calculates the experience rating by taking the total benefits charged against an employer’s account in an applicable time period and divides the employer’s taxable payroll during that same period. In other words, a higher benefits ratio indicates a higher usage of the unemployment system, which results in higher taxes. Generally, an employer will receive an experience rating as of June 30th if it has completed a minimum of 12 consecutive months from the date in which it accomplished liability.
Each year, SCDEW ranks employers based on their benefit ratio percentage. Each employer is then categorized equally among twenty (20) rate classes, with each class consisting of five percent (5%) of the taxable wages of all employers eligible for a rate computation. New employers are assigned to rate class twelve (12). SCDEW then determines the tax rate for the following calendar year by estimating the amount of benefits payments, loan payments, loan interest payments and the “trust fund solvency target.”
Nonprofit organizations and state and local government entities are considered employers liable for payment in lieu of contribution, meaning that they may elect to make payments to the SCDEW. This payment can be made in one of two ways: (1) at the end of each calendar quarter, SCDEW can bill each organization for an amount “equal to full amount of regular benefits plus one-half of the amounts of extended benefits paid during that quarter”; or (2) pay two percent (2%) of the quarterly taxable payroll of that organization within 30 days after the close of each calendar quarter. At the end of the year, SCDEW will then determine whether the total payments for each year made by the organization is less than, or in excess of, the total amount mentioned in the first option. The organization is liable for the unpaid balance if it is less than the amount above. If in excess, all or part of the excess may either be refunded or retained in the fund as part payment for the next year.
So what can an employer do in order to keep the UI tax rate down?
First, implement clear policies and keep records to ensure that sufficient evidence of cause or misconduct can be produced. For instance, be sure to maintain records of employee orientation, trainings, negative counseling, etc.
Second, respond timely. When employees file, employers have the opportunity explain the reason why the claimant is no longer employed. To prevent improper payment, the employer has to respond within 10 calendar days of the notification of appeal tribunal’s decision.
Third, respond adequately and effectively. Your response may come to light in subsequent litigation, so be careful how you respond and consider consulting legal counsel. If the employee was terminated, employers should generally provide SCDEW with the name and title of the employee, a description of the final events leading to termination (with dates and times), a list of warnings given to employee during final year of employment (with dates and times), and how the employee’s actions impacted the company’s operation.
Finally, understand the eligibility and appeals process. Not participating in the appeals process can adversely affect taxes.
About the author: Demetrius Pyburn is employed at Haynsworth Sinkler Boyd, P.A. in Greenville, SC. He is a graduate of the University of South Carolina School of Law in Columbia, SC, Class of 2017 and anticipates becoming a member of the South Carolina Bar in November 2017.