What You Should Know About Being a Contributing (Taxable) Employer Versus Reimbursing Employer
When it comes to unemployment insurance there are two types of employers, Contributing (Taxable) and Reimbursing (Non-Taxable). Contributing employers “contribute” taxes to their UI Reserve Account based on their “UI Experience” while reimbursing employers do not have a tax rate but pay for benefits charged to their UI account after they are paid to the claimant. While there can be monetary advantages to electing the reimbursing option, there can also be pitfalls.
An employer is only able to elect the reimbursing status if they meet the state UI Agency requirements to do so. Generally reimbursing employers include public entities, government agencies, educational institutions, and nonprofit agencies. Once eligibility is established, reimbursing employers no longer pay an experience-rated tax rate on their taxable payroll into their state unemployment tax account (SUTA). Instead, when and if a claimant collects benefits, the state issues the employer an invoice, and the employer reimburses the state for those unemployment benefits collected against their account.
Here are a few issues that reimbursing employers should consider:
- Contributing employers pay taxes on their employees’ taxable wages regardless of whether there are actual charges to their account during the previous quarter. Reimbursing employers only pay when there are charges to their account.
- If the state invoices a reimbursing employer and there is a discrepancy between what the employer feels they should be paying and what the state is charging them, the employer may not pay a lesser amount for any reason. Even in the case of a state error, if an employer fails to pay the invoiced amount in full, they will be penalized. In some states, the monetary impact of such penalties can be severe.
If a discrepancy is found between the invoiced amount and what should have been invoiced, an adjustment may be made on a subsequent invoice. In the event there is an overpayment made to a claimant, the state might not credit the future invoice of the employer, unless those funds are recovered from the claimant.
- In many states, reimbursing employers are only able to avoid being chargeable on the claim when they are the separating employer. In many cases “base period” reimbursing employers are chargeable regardless of the separation issue or outcome of a prior claim.
- Many states are now offering “non-chargeable” status for certain types of separations (i.e., when the claimant has good cause to quit, but not through any fault of the employer). However, typically this is not available to reimbursing employers.
- Reimbursing employers are still charged during times in which UI Extensions are in place (Federal or State). Typically contributing employers are not charged the full amount of the extension benefits (or not at all some cases) however, reimbursing employers are still paying for those extension weeks on a dollar for dollar basis.
There are both advantages and disadvantages to being a reimbursing employer. It can be difficult to change from one status to another so employers should be very deliberate when they make this decision. Unemployment Tracker works with both reimbursing and contributing employers – we are happy to provide additional information and advice if needed. Simply visit us on the web atwww.UnemploymentTracker.com