The "Golden State" will likely soon require more gold from employers to help restore the precarious solvency of its unemployment insurance fund.
In Governor Jerry Brown's recent 2012-13 budget proposal, his Employment Development Department (EDD) budget includes a new surcharge on employers to pay the interest due associated with the state's current $10 billion unemployment insurance loan from the federal government.
On September 30, 2011, California paid the U.S. Department of Labor $303.5 million on interest accrued since the beginning of the year, at an estimated cost to CA employers of $289.8 million. The estimated interest due in September 2012 for the current calendar year is $417 million, which is projected to cost CA employers another $615.7 million.
Specifically, the proposed new surcharge will start at $39 per employee in 2013 and increase to an average of $61 per employee in 2014. Because revenues from the surcharge are to be deposited into the state's Employment Training Fund, the surcharge would likely be in the form of an increase to the existing employment training tax (ETT), currently set at 0.1%.
This expected unemployment tax surcharge will fall on top of the additional $21 per employee federal payroll tax increase for calendar year 2011, due to California's recent designation by the Department of Labor as a "Credit Reduction State." * For calendar year 2012, that amount is expected to increase to $42 per employee.
( * ) A state that has not repaid money it borrowed form the federal government to pay unemployment benefits is defined as a "Credit Reduction State." Due to California's outstanding loan balance for two consecutive years, the FUTA credit for CA employers has decreased from 5.4% to 5.1% starting January 31, 2012, for 2011. This, in effect, is a 0.3% FUTA credit reduction. The credit reduction will further increase to 0.6% for calendar year 2012.
To help navigate the growing employment tax burden, make sure to optimize your unemployment claims administration. Download our helpful UI Claims Administration tips: