Since the former Employment Security Commission did such a shoddy job handling the agency, Employers in South Carolina will see a decrease in the Federal Unemployment Tax credit (FUTA) for a few years.
You may remember the ESC reform debate earlier this year. We found the ESC was running up a debt to the Federal Government getting close to the tune of $1,000,000,000! Thats a billion dollars if you didn’t count the zeros. 1/3 third of those dollars were going to employers fired for cause. That’s right, you steal from your boss, get fired, you get paid to not work. Didn’t sound too logical to me either. Another problem was employers that intentionally gamed the system were paying the same rates of the employers that saw very little claims.
Since SC has an outstanding loan balance of more than two calendar years the federal government will begin implementing the FUTA tax credit reduction as a means of recouping the money.
Any good news? Yes. You may know that we passed legislation in the Spring to reform the agency (now the Department of Employment and Workforce – DEW) and revise the tax collection system. These revisions will prevent further FUTA credit reductions and also ensure a stable system going forward. The reduction that will take place this year will remain in place until the loans are repaid. Repayment is projected for 2015, but we have good reason to believe that it may occur sooner.
This reform would not have been possible without the the leadership of Sen. Greg Ryberg (R-Aiken), who chairs the Senate Labor, Commerce, & Industry Committee. Along with the LCI staff and the experts over at the Dept. of Commerce, we were able to rebuild the agency and stop the bleeding of the unemployment trust fund.
Update: I was contacted by Dr. Von Nessen in the DEW director’s office and need to make this clarification:
The reduction that will take place this year will remain in place until the loans are repaid. Is not entirely accurate. In 2011, DEW anticipates being able to make the necessary voluntary repayments of the loans that will allow for the credit to be restored (“avoid the credit reduction”). So, for the 2011 tax year (paid in January 2012), employers in South Carolina will face the standard 0.8% rate. We anticipate being able to “avoid the credit reduction” in each year between 2011 and 2015, so 2010 (paid in January 2011) is the only year businesses can expect to pay the higher federal tax rate.