UI Claims Management

Alabama Employers Face Extension of UI Surcharge and UI Integrity



Jeff Aleixo

Alabama employers were almost in for some good news……however, it looks like the celebration has been called off.

photo credit: OpenSkyMedia

A UI surcharge that had been slated to expire in September of this year has been made permanent, per HB 90, which was signed by governor of Alabama in May of 2013. The surcharge, known as the Employment Security Enhancement Assessment (ESA) tacks another 0.06% onto employers’ state unemployment insurance (SUI) taxes. The ESA has been in place since 1992, so effectively, it’s business as usual for Alabama employers.

Read the entire text of Alabama’s HB 90 here.

Separately, Alabama employers will be subject to UI Integrity legislation effective October 21, 2013, as per SB 201 which was signed into law on May 23, 2013.

All states are required to enact UI integrity legislation this year by Section 252 of the 2011 Federal Trade Adjustment Assistance Act (TAAEA). Section 252 provisions pertain to the overpayment of UI benefits caused either by an employer’s failure to respond timely or adequately, or by fraud on the part of the claimant.

It’s up to each state to define what constitutes a “pattern of failure” (to respond timely or adequately), and Alabama has defined it as “two or more occasions.”

About Section 252

Section 252 measures are part of a larger effort by the federal government to address the growing U.S. deficit, and are specifically designed to help prevent the improper payments which have long been a drain on the unemployment insurance system.

Section 252’s mandate is that states must require employers to respond timely and adequately to state requests for UI benefit information. Accordingly, when employers (or their agents) fail to respond timely and adequately and are responsible (in part or in whole) for improper payments being made to claimants, the employer’s UI account must not be relieved of charges. The prohibition against relief of benefit charges applies to for-profit and non-profit employers alike.

Federal TAAEA law requires employers to be charged for UI benefit overpayments when there is a pattern or practice of failure to adequately and timely respond to state requests for information about UI benefit claims.

Read more about UI Integrity

Past DOL claims that 19% of UI benefit overpayments stem from employers’ untimely response and/or inaccurate information were a major impetus to hold employers accountable for these overpayments. In 2011, the Department of Labor estimated that $14 billion dollars, or 11% of all UI claim payouts, were a result of overpayments. For more information, see our earlier blog post here.

With TAAEA’s Section 252, the federal government has mandated the states to apply new, stricter rules and practices which place a greater burden on employers to respond quicker, respond better, be more on top of what their third party administrator (TPA) is doing on their behalf, and to be financially responsible for overpayments on unemployment claims charges whenever they hold any blame for the overpayment.

The TAAEA requires states to have UI integrity provisions in place by October 22, 2013, or risk losing the 5.4% maximum federal unemployment insurance (FUTA) credit for their state’s employers. Many of the states’ new laws are going into effect before the October 22nd date.

There are only a few states currently at risk of not passing TAAEA-compliant UI integrity legislation by the October 22nd deadline, and those include Georgia and Vermont, in which their respective state legislatures have adjourned for the year without having passed the necessary legislation.

If you are an employer with operations in the state of Alabama, now is an opportune time to ensure that your in-house and/or third party administrator is prepared to address the upcoming changes as a result of the newly-passed legislation. With this, Alabama joins the ranks of other states that have recently enacted UI Integrity legislation, including: CA, CO, HI, IA, ID, IL, IN, FL, KS, KY, MD, MN, MS, MT, NC, NE, NH, ND, NY, OK, SD, TX, UT, VA, WV, and WY.

Here is the most current available UI data for Alabama:

  • Unemployment rate (as of March 2013): 7.2%
  • Taxable wage base in 2013: $8,000
  • Amount of state trust fund loans: ZERO loan balance; positive account balance in state trust fund
  • Minimum weekly benefit: $45
  • Maximum weekly benefit: $265
  • Minimum tax rate: 1.09%
  • Maximum tax rate: 7.30%
  • Using employer-financed bond: No
  • FUTA reduction: No
(Sources: ETS Blog, U.S. Department of Labor, SUCAP Reports, NASWA, Congressional Research Service.)

Download our one page Fact Sheet on Section 252 to get a better understanding of key provisions that will directly impact employers.

Disclaimer: This article is general in nature and is not intended to replace the guidance of an employment tax expert and/or legal professional with regards to an appropriate course of action in your particular circumstances. Please consult with a professional for appropriate advice in your case. Pursuant to IRS “Circular 230” rules, any information included herewithin is not intended or written to be used for the purpose of avoiding penalties under the federal Internal Revenue Code.