8 Tips to Choose the Best Unemployment Claims Vendor

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Considering replacing your current “in-house” unemployment insurance (“UI”) program with a more efficient/cost effective solution? Or, are you approaching contract renewal with your current vendor and considering options?  Since there is a real employment tax impact here, wouldn’t you want to arrive at an informed decision based on facts?  Consider the 8 points below to help you find the best Unemployment Claims Vendor for you!

1.       Where are you now?

Understanding your current program and results benchmarks effectiveness.  Does your current solution track the following totals?

• separations
• claims
• % of protestability
• untimely response
• late claims
• wins/losses
• appeal hearings
• employer generated appeals
• compliance (UI Integrity Rules - Jan Update)

 2.       Are activity reports effectively measuring program results?

• ease of access
• automatically delivered or requested
• current/historical
• frequency
• proactive or reactive
• basis of analysis
• customization
• determine corrective action

 3.       Employment Tax Expertise

What is the depth of the vendor’s employment tax practice?  What is the vendor’s direct experience of employment tax issues beyond processing unemployment claims like handling unique issues such as audit representation, mergers & acquisitions or penalty abatement?

4.       Your Team

Who is on the “dedicated” team managing your account?  What is their degree of proficiency, level of “enthusiasm/passion”?  Will the vendor’s team’s culture benefit and improve your HR & Payroll Teams?

 5.       Service, service, service

Most vendors will claim “great service,” but performance is what counts.  When considering a vendor, speak with their clients.  Are their clients “Raving Fans”*? How does the vendor rate in performance, responsiveness, follow through, process improvement, dedication to total quality management and continual process improvement? And, what is the vendor’s track record with state agencies?

6.       Timeliness

UI is measured in days, hours and minutes.  Timeliness, appropriateness and accuracy are fundamental deliverables. What is the vendor’s track record for claims “lost” due to timeliness issues?  What is the vendor’s attitude toward this critical topic?

7.       Integration

Although UI can be a “stand-alone” solution, it is often bundled with other related/complementary services, thus taking advantage of “pooled” related data, vendor’s technology and expertise.  Does the vendor offer verification of income & employment ("VOIE"), electonic I-9 / E-Verify, WOTC / hiring-based tax credits and/or technical employment tax consulting?

8.       Return on Investment (ROI)

The typical UI fee is a small percentage of a company’s overall payroll/unemployment tax expense.  An effective UI vendor creates savings exponentially higher than an annual fee. By increasing protestability and resultant win rate, UI vendor service fees become insignificant.

Epilogue

You can focus on the lowest fee and “pay for what you get.”  But, what if your preferred business partner has a vision for your company’s future? What if your partner were to increase compliance, protest more claims, win more protested claims, accelerate/propel “win ratio” through the roof and consistently deliver a high return on investment?

*Raving Fans, “a revolutionary approach to customer service”, co-authored by Kenneth H. Blanchard and Sheldon M. Bowles, (Morrow, 1993)

Posting co-authored by Barry Bagus and Ross Henderson (Employment Tax Specialists, Inc.).

To learn more about our suite of services that help drive savings and make your company even better than it is right now, please click below:

Veterans Tax Credit: Open to Non-Profits & Expanded Filing Time

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The Internal Revenue Service (IRS) has recently released new forms and updated guidance for employers to use in claiming the recently-expanded tax credit for hiring eligible veterans.*

The most significant of these are:

• Expanded filing time for employers to claim the credit
• Clarification about how non-profit employers can claim this credit
• Confirmation of ability to file for the credit electronically or by fax

The Work Opportunity Tax Credit (WOTC) was expanded by the VOW to Hire Heroes Act of 2011, which was enacted on November 21, 2011. Although employers must normally file Form 8850 within 28 days in order to claim the WOTC credit, the new IRS guidance temporarily expands that filing time. For veterans hired on or after November 22, 2011 and before May 22, 2012, employers will have until June 19, 2012 to complete and file the Form 8850 with their state workforce agency. For veterans hired on or after May 22, 2012, the time to file will revert back to the standard 28 days.

The IRS’ has confirmed that Form 8850 may be transmitted by employers electronically or by fax to the state workforce agencies, provided that the state agency is able to accept submissions in those formats.

For-profit employers may be able to claim as much as $9,600 per veteran when they file their income tax return by using Form 5884 to calculate their credit and then incorporating it into their general business credit claimed on Form 3800.

Qualified tax-exempt employers are eligible for the first time to claim WOTC credits under the VOW to Hire Heroes Act expansion. Nonprofit employers may claim as much as $6,240 per eligible hired veteran by filing Form 5884-C. Two pages of the recently-released IRS guidance (Notice 2012-13) are devoted to addressing how tax-exempt organizations should claim this credit.

Highlights for Nonprofit Employers Include:

• Unlike for-profit employers, nonprofits’ claimed credit does NOT reduce their employer social security tax liability at the time of filing.

• Form 5884-C is filed separately, AFTER the employment tax return for the period in which the credit is being claimed has been filed.

• The IRS will process Form 5884-C separately, and refund the amount properly claimed, subject to the limit of the amount of employer social security tax liability for the period in which the credit is claimed.

• Excess credit (credit exceeding the social security tax liability for that period) may be carried forward.

• The IRS recommends that organizations NOT reduce their required deposits in anticipation of any credit.

• For any tax period in which it is claimed, the credit must be calculated cumulatively going back to November 22, 2011, and then reduced by any credits claimed via Forms 5884-C for prior tax periods.

*Eligibility is based on length of unemployment, to be certified by the state workforce agencies. The amount of the credit depends on length of unemployment before hire, number of hours a veteran works, amount of first-year wages paid, and whether the veteran has service-related disabilities.

You may also want to view our other blogs related to this topic:

Hire a Veteran and Earn up to $9,600 WOTC Tax Credit

Employer Credits Expiring Dec 31st: WOTC & Federal Empowerment Zone

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BUSINESS TAX FILERS CAN CLAIM HIRE ACT RETENTION CREDIT BY APRIL 17TH

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Calendar year business tax filers are able for the first time to claim the retention credit portion of the HIRE Act when they file their 2011 tax returns before April 17^th of this year. Enacted in 2010 to offset unemployment, the HIRE (Hiring Incentive to Restore Employment) Act provided employers with a dual-pronged incentive to hire and retain unemployed workers. While many businesses have already taken advantage of the HIRE Act by claiming the payroll tax exemption as far back as mid-2010, until now, most have not been able to claim the business tax credit portion of the HIRE Act, known as the “retention credit.”

Upcoming Opportunity to Claim the Business Tax Credit Portion of the HIRE Act

The HIRE Act consists of a payroll tax exemption AND a business tax credit. The business tax credit is a retention credit for qualified workers who were hired after February 3, 2010 and who were retained for 52 consecutive weeks. The 2011 tax filing deadline for most calendar year business tax return filers represents the first opportunity many employers have had to claim this retention credit. Fiscal year business tax return filers are also eligible to claim the credit at their required filing date.  The tax credit amounts to either 6.2% of the federal taxable wages paid to qualified employees over the 52-week period, OR $1,000, whichever is lesser.

Employers Can Still Claim the Payroll Tax Exemption by Filing a Form 941-X to Amend Earlier Filings

Many businesses which intended to pursue the HIRE Act have already claimed the payroll tax exemption (6.2% of the social security wages of qualified employees between March 19 and December 31, 2010) by filing Forms 941 in Q2, Q3, and Q4 of 2010, as well as Q1 of 2011. Since Q1, 2011 and through April 15, 2015, employers also have the option to claim the payroll tax exemption retroactively by filing a Form 941-X to amend their previously filed forms for those four quarters.

Both the Payroll Tax Exemption AND the Retention Credit May be Claimed Retroactively by Amendment

ETS tax experts have confirmed with the Tax Law Department at the IRS that it will be possible to make amendments on 2011 annual tax returns in order to file for the HIRE Retention Credit retroactively, if necessary. The time frame for filing an amended return for the Retention Credit is 3 years from the date of filing, or 2 years from the date the tax is paid.

Don’t Miss Out on this Important Opportunity to Offset Dramatically Rising Employment Costs

In this climate of high unemployment and rising taxes for employers, it’s important to offset rising employment costs by taking advantage of every opportunity to extract savings from your employment taxes. The HIRE Act is a “no-brainer,” with potential savings to employers estimated at over $10 billion by the U.S. Treasury. Still, many employers have yet to claim this credit.

Eligible employers include both taxable businesses and tax-exempt organizations .

Want to find out what kind of savings the HIRE Act credits may have in store for you?

California: Prepare for New Unemployment Tax Surcharge

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The "Golden State" will likely soon require more gold from employers to help restore the precarious solvency of its unemployment insurance fund. 

In Governor Jerry Brown's recent 2012-13 budget proposal, his Employment Development Department (EDD) budget includes a new surcharge on employers to pay the interest due associated with the state's current $10 billion unemployment insurance loan from the federal government. 

On September 30, 2011, California paid the U.S. Department of Labor $303.5 million on interest accrued since the beginning of the year, at an estimated cost to CA employers of $289.8 million. The estimated interest due in September 2012 for the current calendar year is $417 million, which is projected to cost CA employers another $615.7 million. 

Specifically, the proposed new surcharge will start at $39 per employee in 2013 and increase to an average of $61 per employee in 2014.  Because revenues from the surcharge are to be deposited into the state's Employment Training Fund, the surcharge would likely be in the form of an increase to the existing employment training tax (ETT), currently set at 0.1%. 

This expected unemployment tax surcharge will fall on top of the additional $21 per employee federal payroll tax increase for calendar year 2011, due to California's recent designation by the Department of Labor as a "Credit Reduction State." * For calendar year 2012, that amount is expected to increase to $42 per employee.

( * ) A state that has not repaid money it borrowed form the federal government to pay unemployment benefits is defined as a "Credit Reduction State."  Due to California's outstanding loan balance for two consecutive years, the FUTA credit for CA employers has decreased from 5.4% to 5.1% starting January 31, 2012, for 2011.  This, in effect, is a 0.3% FUTA credit reduction. The credit reduction will further increase to 0.6% for calendar year 2012.

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To help navigate the growing employment tax burden, make sure to optimize your unemployment claims administration.  Download our helpful UI Claims Administration tips:

Unemployment Trust Fund Solvency Update: UI Funds State by State

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SUCAP, the State Unemployment Compensation Advisory Program, has released a 2011 legislative advisory report including a state-by-state overview of unemployment trust fund solvency across the country and a state-by-state summary of loans, UI rates, revenues, and benefits paid.

Employers and service-providers in the employment tax arena have been closely following recent developments regarding the status of states’ UI funds and states’ ability to pay back federal loans taken out to cover UI fund shortages. Unfavorable economic conditions have resulted in a majority of states having to turn to the federal government for loans to help them meet their unemployment insurance (UI) benefit obligations. Where those states have been unable to pay the required interest on those loans, the states’ employers have been subject to higher tax rates on the $7,000 FUTA tax base (6.0% versus 0.6-0.8%).

The Virgin Islands were the lone territory unable to pay the required interest before the Sept. 30^th, 2011 deadline last year, and it ended up costing them $32,952 in penalties. One of the reasons the Virgin Islands was the lone “violator” is that the other states and territories were able to take advantage of a variety of options available to them to minimize or avoid paying the interest or other federal penalties stemming from non-payment of interest.

Some of these options include:

• The state may repay the loan principal by certain dates under certain conditions to avoid having to repay interest and/or penalties.

• When states maintain a loan balance for a certain length of time, it subjects the state’s employers to a FUTA credit reduction (0.3% for each year of the loan, or $21 per employee in the first year of credit reduction, $42 per employee in the second year, etc.) States may avoid this credit reduction by meeting three conditions: 1) repaying all loans for the most recent year ending Nov. 9^th, in addition to the additional taxes that would have been imposed that year; 2) alter state law to increase the net solvency of the state’s UTF account; and 3) have enough funds in their UTF to pay all compensation for the last calendar quarter of the year without borrowing additional funds from the federal government. South Carolina used this credit reduction avoidance strategy successfully in 2011.

• States may apply for a credit reduction cap if it meets four criteria: 1) there is no state legislative or administrative action to decrease the state unemployment tax effort in the preceding 12 months from Sept. 30; 2) there is no state legislative or administrative action to decrease the state UTF’s net solvency; 3) the average state UI tax rate on total wages must exceed the five-year average benefit cost rate on total wages; and 4) the loan balance on Sept. 30^th must not exceed the balance three years before.

• The 100% reimbursement of the federal share of extended benefits has been temporarily extended under HR 3630, the Middle Tax Relief and Job Creation Act of 2011. This extension includes relaxed trigger provisions which enable states to have more flexibility with their Insured Unemployment Rate Triggers and also allows more states to continue to be triggered “ON” for extended benefits through the first two months of 2012. While 34 states are currently triggered “ON,” many are expected to trigger “OFF” sometime in the next year unless Congress acts to provide a revised look-back provision and the states continue with the relaxed trigger provisions in 2012.

Source: SUCAP 2011 Legislative Advisory Report

To help ensure you are best managing your UI tax exposure in these challenging economic times, consider taking advantage of our complimentary custom UI Financial Impact Analysis:

Separation Stories - Interesting Unemployment Claims

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From time to time, we will share interesting and unusual employee separation stories.  Beyond introducing some of the more "out of the ordinary" situations, we will also ask you to consider some more serious questions that may help you improve your HR processes & UI tax control.

This story is about a very "to the point" customer service representative at a video game controller company. The representative was responding to a client who had inquired regarding the shipping status of a game controller he had ordered.  As part of the representative's email response, the representative wrote "Grow up you look like a complete child bro."

Since then the story has gone viral with a video lampooning the representative, and the representative was subsequently fired.

For all of you UI Claims experts and experts-in-training; here are some questions to consider out of this real-life scenario:

- What could have been done in hiring &/or training to prevent this from happening?

- If/how is this behavior addressed in your Employee Handbook?

- Assuming a UI claim is filed, what would be its potential employment tax impact / cost?

- How would the employer best protest this UI Claim?

 We welcome your thoughts in the comments below.

You may also want to check out our UI Management Tips for some of our "Best Practices" ideas about UI management:

Federal Unemployment Compensation Program: New Employer Penalties

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Federal Unemployment Compensation Program

New Penalties for Employers!

The Department of Labor ("DOL") just released their interpretation of the recent Federal Unemployment Compensation (UC) Program Integrity legislation that materially increases an employer's exposure to Unemployment Claims charges.  In short, the federal government is mandating that the states have to apply new strict rules & practices that will place the employer at greater risk to be responsible for overpayments related to Unemployment Claims charges. This comes after the DOL has made claims that 19% of UI benefit overpayments stem from employer untimely response and/or inaccurate information provided by the employer.   

Under the "Prohibition of Noncharging due to Employer" fault section in the Unemployment Compensation (UC) Program Integrity section of the October 2011 Trade Adjustment Assistance Extension Act of 2011 (TAAEA),

“….the state must not relieve an employer of the charges when the employer, or an agent of the employer, does both of the following:

- Was at fault for failing to respond timely or adequately to the request of the state agency for information relating to a claim for UC benefits that was subsequently overpaid; and,

- Has established a pattern of failing to respond timely or adequately to requests from the state agency for information relating to claims for UC benefits.”

For an employer, the DOL interpretation and state application of these changes are what opens up the exposure.  First off, a "pattern" can be interpreted as "two or more" instances of failing to respond timely - which is a very low threshold, especially for larger employers.  Secondarily, in many instances even where an employer has failed to respond timely, the core cause of an overpayment may still be related to "non-employer" events such as claimant error, fraud, and/or administrative error by the agency. 

In response to this materially-changing UC environment, fundamental process improvements will be needed in your UC administration to help avoid penalty situation:

• Systems of checks & balances to measure and monitor all claims activity (real-time).
• Complete and timely flow of ALL applicable separation detail needed for unemployment claims on original separation as well as other requests.

At UCM+, our PLUS Platform provides the technology and services to support the fundamental processes needed for employers to navigate the expected upcoming changes. 

Additional Background on the UC Program Integrity Measures

The UC Program Integrity measures, included as part of the October 2011 TAAEA, are part of a larger effort by the federal government to address the very large U.S. deficit.  The UC Program Integrity measures have been specifically designed to help prevent the improper payments which have been a long-term problem and drain on the UC system.  The employer impact piece of this legislation is tucked under Sec. 252 of Subtitle C - PROHIBITION ON NONCHARGING DUE TO EMPLOYER FAULT.

The Sec. 252 in the original Act was written broadly and open to much interpretation.  As such, the DOL evaluated the language and provided their interpretation / guidance as per the Dec 20, 2011 letter from DOL Assistant Secretary Jane Oates. Of particular interest is item #5 starting on page 3 of this letter, which indicates that "states have some latitude in implementing the new requirement, including whether a pattern of behavior is required and, if so, the determination of the definition of a pattern of failure to respond timely or adequately to requests for information." Such wording in the DOL guidance appears to give states permission to exclude or minimize the requirement that a pattern of employer/employer agent failure to respond timely be established, thereby widening the scope of the original legislation.

The effective date of required state statutory changes is October 21, 2013 and states may opt to enact rules prior to this.

ETS will closely monitor the upcoming state regulations and agency practices once the new rules are implemented. 

Hire a Veteran and Earn up to $9,600 WOTC Tax Credit.

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Under the recent Vow to Hire Heroes Act of 2011 (enacted November 22, 2011), Work Opportunity Tax Credits (WOTC) for hiring a Veteran can be up to $9,600 for each eligible new hire.

A summary of this Act's key WOTC-related provisions as below:

• Extends the current target group for Veterans receiving Supplemental Nutrition Assistance Program (SNAP) benefits with the same qualified wages cap ($6,000) and maximum tax credit ($2,400).

• Extends the current target group for Veterans with a service-connected disability with the same qualified wages cap ($12,000) and maximum tax credit ($4,800).

• Extends the current target group for Veterans with a service-connected disability unemployed for at least 6 months with the qualified wages cap increased to $24,000 and the maximum tax credit increased to $9,600.

• Establishes a new target group for unemployed Veterans, similar to the Recovery Act of 2009 unemployed Veteran group that expired on December 31, 2010:

o Veterans unemployed for at least 4 weeks with a qualified wages cap of $6,000 and maximum tax credit of $2,400.

o Veterans unemployed for at least 6 months with qualified wages cap of $14,000 and maximum tax credit of $5,600.

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit incentive provided to private-sector businesses for hiring individuals from target groups who have consistently faced significant barriers to employment.  This program provide $millions in annual refunds and should be part of all employers' new employee onboarding practices.  ETS helps many employers maximize savings and reduce internal resource needs through our "Credits PLUS" Hiring Based Credits Administration solutions, including Veterans Tax Credits under the VOW to Hire Heroes Act of 2011.

Employer Credits Expiring Dec 31st: WOTC & Federal Empowerment Zone

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The version of the Temporary Payroll Tax Cut Continuation Act that was passed by Congress last week was missing a number of extenders that had been originally included in the Senate version of the bill. Because of this, several employer credit programs will expire at year end on December 31, 2011, including the Work Opportunity Tax Credit (WOTC), the Indian Employment Credit, and the Federal Empowerment Zone Credit. Veterans groups under the WOTC are unaffected, as they were previously extended through the end of 2012 by the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011.

Although nothing is certain, it is anticipated that these expirations will amount to only a temporary hiatus and will likely be corrected by a retroactive extension of the credits in early 2012 when Congress reconsiders the payroll tax cut extension.

When similar situations have occurred in the past, the state workforce agencies have continued to process all paperwork received from employers, but have postponed making WOTC certification determinations until retroactive authorization occurs. For that reason, despite the temporary uncertainty surrounding these credits, we suggest that employers continue to evaluate job applicants’ potential eligibility for WOTC eligibility and continue to submit IRS form 8850, Pre-Screening Notice and Request for Certification for the Work Opportunity Credit, in order to be in compliance with the statutory 28-day filing deadline, and not risk missing out on potential savings opportunities.

Breaking News: Payroll Tax Cut Extension Passed

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The Temporary Payroll Tax Cut Continuation Act of 2011

After much haggling, the government will provide an early Christmas gift to some

On Friday, December 23^rd, House Republicans backed off of their initial opposition to a bill that will provide a two-month extension of the payroll tax cut, extend unemployment benefits, and prevent a 27% cut to doctors’ Medicare payments. With the House finally able to approve the bill, which had already been approved by the Senate last week (in slightly modified form), the President signed it into law. The modifications to the bill since it was passed by the Senate include provisions to help small businesses cope with tax changes, and to prevent manipulation of an employee’s pay if the tax cut is not extended beyond two months.

The extension prevents the increase of employee-side Social Security taxes from 4.2 percent back to 6.2 percent through Feb 29th, which translates to about $40 out of each paycheck for a family earning $50,000 a year.  An estimated 160 million Americans would have been affected by this increase. Employers and payroll companies will be responsible for handling the withholding charges, so employees do not need to take any additional action.

The law also includes a new recapture provision which impacts high-earner employees receiving more than $18,350 in wages during the first two months of 2012. An additional tax will be imposed upon those high-earners at a rate of 2% of the wages they receive in January and February of 2012 that is in excess of $18,350. This recapture tax is an add-on to income tax liability and is payable in 2013 with the employee’s 2012 taxes.

As is indicated in the name of the bill, this tax relief is only temporary and will not extend beyond February, 2012 without further action from Congress. The President is urging Congress to pass a full one-year extension, but that has yet to be hammered out.

Sources:

Stephanie Condon, CBS NEWS. “Payroll Tax Cut Extension Passed in Congress,” Dec 23, 2011.

Jennifer Steinhauer, New York Times. “House G.O.P. Leaders Agree to Extension of Payroll Tax Cut.” Dec 23, 2011.

Internal Revenue Service. IRS publication IR-2011-124, Dec. 23, 2011. Accessed at www.irs.gov.