Tax Consulting

Fed. Sequester Cuts to Impact State UI Programs: Employers To Pay?

03.28.2013

Author

Jeff Aleixo

Earlier this month, the US Department of Labor (DOL) issued guidance to the state workforce agencies regarding details of how the federal sequester will impact unemployment insurance (UI) program benefits and operations.

Read the DOL guidance for yourself here.

The federal sequester funding reductions were effective March 1, 2013. According to the DOL, the following programs will be affected:

  • UI state administrative grants under Title III, Social Security Act
  • UI national administrative activity funding
  • The federal share of extended benefit (EB) reimbursement
  • Emergency Unemployment Compensation (EUC) benefits and administrative funding
  • Administrative funding for UCFE, UCX, and administrative funding for TRA, ATAA, and RTAA benefits under the Trade Adjustment Assistance Act.
  • Reemployment and Eligibility Assessments (REAs) for regular UI program claimants
  • EUC-related Reemployment Services and Reemployment and Eligibility Assessments
  • Federal reimbursements of state Short Time Compensation benefit costs
For extended (EB) and emergency (EUC) benefits, the reduction will be 5.1% to benefits for FY 2013; October 1, 2013 through September 30, 2013. Because of this, the actual reduction in benefits for the remainder of FY 2013 will be higher than 5.1% in order to meet the required budget savings. However, the DOL has determined that EUC and EB benefits already paid out are not subject to the reduction. Rather, it will apply to weeks of unemployment starting on or after March 31, 2013.
This means that the actual benefits reduction required by the DOL will be 10.7% starting March 31, 2013. For states that implement the cuts later, the reduction will be greater. Likewise, claimants in most states will first see a reduction in their benefits for the week ending April 6, 2013.

Unemployment Benefit Cuts (EUC & EB) Reductions

Implemented in time for unemployment week March 31-April 6 = 10.7% cut
Implemented in time for unemployment week April 28-May 4 = 12.8% cut
Implemented in time for unemployment week June 2-June 8 = 16.8% cut
Implemented in time for unemployment week June 30-July 6 = 22.2% cut

Impact of the Budget Cuts and Takeaways for Employers:

Employers should be aware that changes in federal funding to UI programs may result in employers being charged more, either in error, or through the states asking employers to assume additional costs to make up the missing funds.

Already-spread thin state workforce agencies may be ill-equipped to implement the programming and administrative changes required by the federal sequester. The reductions in administrative funding included in the federal sequester will only compound the problem. If employer UI accounts were before prone to error (estimated at 10-15% even before the recent recession put tremendous strain on state workforce agency resources) they will be even more so now.

Doug Holmes, of the UWC– Strategic Services on Unemployment & Workers’ Compensation, has indicated that the federal sequester is likely to result in significant instances of overpayments.

Employers should monitor their UI benefit charges even more closely than usual. It is also recommended that employers keep tabs on how the states and state workforce agencies plan to keep EB federal sequester reductions from being paid out of UI trust funds and erroneously charged to employer accounts.

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.

 

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