UNEMPLOYMENT INSURANCE:  BENEFIT CHARGES AGAINST CONTINUING EMPLOYERS

House Bill 4394

Sponsor:  Rep. Joe Haveman

Committee:  Commerce

Complete to 6-7-11

A SUMMARY OF HOUSE BILL 4394 AS INTRODUCED 3-8-11

House Bill 4394 would add a new Section 27c to the Michigan Employment Security Act to provide that, in the case of a claimant working for more than one employer, the claimant's benefits would not be charged to the continuing (current) employer, but would instead by charged to other base period employers.  Although the continuing employer would not be charged for any benefits paid out, the wages paid by that continuing employer would still be used to determine the claimant's monetary eligibility for benefits, as well as the weekly benefit amount and the maximum duration (in weeks) of benefits.[1]     

More specifically, the bill provides that if a claimant's base period includes multiple employers, the employer that continues to employ the claimant after the claim for benefits is filed, may file a request for redetermination with the UIA within 30 days after the UIA mails the initial notice of monetary determination.[2]  In its request for a redetermination, the continuing employer would have to affirm the following:

·                    The continuing employer has employed the claimant since the end of the base period.

·                    That for each week of the claimant's benefit year, the continuing employer will pay the employee an amount at least equal to the average weekly wage the employer paid the claimant during the base period (excluding employee-requested unpaid leave days).

·                    The continuing employer will notify the UIA within 10 days after the end of a week in which the claimant claimed benefits that it failed to employ the claimant or failed to pay the claimant the required weekly wage.   

If the continuing employer fails to employ the claimant and fails to pay the worker at least his/her average weekly wage during the base period, the original monetary determination would apply for any remaining weeks in the benefit year.[3]

Upon receiving a request for redetermination by a continuing employer under the bill, the UIA would 15 days have to redetermine the weekly benefit amount and the maximum number of weeks of benefits for which the claimant would be eligible, and send a notice of redetermination to the employer.  The amount and duration of benefits would be based on the following principles:

·                    The wages used to determine the initial monetary eligibility for benefits would continue to be used for redetermining initial monetary eligibility. (This would include the wages paid by the continuing employer, if that employer is also a base period employer.)[4]

·                    The wages paid by the continuing employer would be excluded for the purposes of determining the weekly benefit amount and the maximum duration of benefits.[5]

·                    Following a redetermination to exclude a continuing employer, benefits shall be charged to the remaining base period employers.[6]

·                    The act allows "underemployed" claimants to receive partial UI benefits, where the weekly benefit amount is reduced by $0.50 for each $1 in earnings during that week.  The bill provides that the wages paid by the continuing employer would not be included in determining the reduction of benefits, if any, due to earnings in the week.

·                    With respect to "underemployed" claimants, the act provides that if the total amount of benefits and earning is at least 150% of the weekly benefit amount, each dollar in earnings above the 150% of the weekly benefit amount reduces benefits payable by $1.  The bill provides that earnings from the continuing employer would not reduce benefits payable to a claimant. 

Background Information:

Under the MESA, an employer's state unemployment tax rate is based on its "experience rating" where, in general, employers that have more former employees receiving unemployment benefits have a higher tax rate than those employers with fewer former employees receiving benefits.  The UIA maintains for each employer an account which tracks the amount of benefits paid out to former employees and the amount of state unemployment taxes paid.  Benefits paid to an employer's former employees are "charged" against this account.  The main component of the state unemployment tax rate is the Chargeable Benefits Component (CBC) rate, which is determined by dividing the employer's total amount of benefit charges for the past five years (ending the previous June 30th) by the employer's total taxable payroll over the same time period.[7]  Under this calculation, the higher the benefit charges, the higher the tax rate.

When a displaced worker files a claim for unemployment benefits, the Unemployment Insurance Agency (UIA) processes the claim and issues a monetary determination, which is sent to the separating employer and each base period employer.[8]  The monetary determination notifies employers that a claimant has filed an application for UI benefits, and provides information to employers on the claimant's weekly benefit amount, maximum duration of benefits, the amount of wages earned with the separating employer and base period employers, the maximum amount of benefits that could be charged to the employer, and the reason for separation from employment given by the claimant.  Employers have 10 calendar days from the "mail date" to object to the determination, otherwise the benefit payments will not be changed.  (If the claimant's reason for separation is "quit", the employer has 30 calendar days in which to object to the determination.)  A redetermination may be further appealed by an employer. 

FISCAL IMPACT:

The bill would have an indeterminate impact on the Unemployment Trust Fund, potentially affecting benefit payouts and state UI tax revenue, and the Unemployment Insurance Agency.  While adding an entirely new section to the Michigan Employment Security Act, the bill affects (directly or indirectly) many other sections of the act that cover substantially the same topic.[9]  The bill contains other provisions where the meaning or ultimately the UIA's interpretation and implementation are not known. 

Section 20(f) of the MESA provides that if there are multiple base period employers, if a continuing employer pays a claimant more in wages that what the employer is charged for benefits, any benefit charges are charged instead to the nonchargeable benefits account rather than the employer's experience account.  (By providing that benefits in this case are not chargeable, the continuing employer's state UI tax rate isn't impacted.)  The bill, in contrast, provides that a continuing employer would not be charged if it pays the claimant at least the claimant's average weekly wage.  Moreover, by providing that benefits are to be charged to other base period employers, the bill shifts the benefits from being nonchargeable (non-experience rated) to being chargeable.  This would tend to increase employer's tax rates and increase revenue credited to the Unemployment Trust Fund.    

The bill provides that wages used to "determine qualification" (a phrase not used in the act) for benefits in the initial monetary determination shall continue to be used for the purposes of redetermining the weekly benefit amount and duration of benefits.  [If, for instance, the bill intends to say the wages used in the initial monetary determination to establish a "benefit year" (a defined term) shall also be used in a redetermination under the bill to establish a benefit year, the bill could use the phrase "benefit year".]  "Benefit qualification purposes" could be construed to mean the establishment of a benefit year (monetary eligibility), the determination of the weekly benefit amount, or the determination of the maximum duration of benefits. 

Under the act, initial monetary eligibility is tied to wages in the "high quarter" and in the entire base period.  The weekly benefit amount is based on the "high quarter" wages, while the duration of benefits is tied to the base period wages and the weekly benefit amount.  At the same time, the bill says that wages paid by the continuing employer base period shall be excluded.  It's not clear in what manner.  One possible interpretation could be that the benefit amounts calculated under a redetermination, under the bill, would be based on the  same benefits as the original monetary determination (including wages paid by the continuing employer during the base period), with (as provided in the bill) the benefit charges allocated among all other base period employers, excluding the continuing employer.  This would effectively mean that benefit charges otherwise allocated to the continuing employer, based on its base period wages to the claimant, would instead be allocated to the other remaining base period employers.

The act provides that the first two weeks of benefits will generally be charged to the separating employer, with the subsequent weeks charged against all base period employers.  Under the bill, following a redetermination, benefits are charged to the base period employers, without that two week period where benefits are charged to the separating employer. 

The act currently reduces weekly benefits to claimants based on any earnings within the week.  This would already include earnings from employment with the continuing employer.  Under the bill, such earnings would not be used to reduce benefits.  This would effectively increase benefit payouts and outlays from the Unemployment Trust Fund. 

Under the act, employers have 10 days in which to protest a monetary determination.  Under the bill, in the instance of a continuing employer, that protest period is 30 days. 

                                                                                                                       

                                                                                                  Fiscal Analyst:   Mark Wolf

■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

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