On May 2, 2013, the governor of Indiana signed HB 1457 into law, subjecting Indiana employers to UI integrity legislation as required by Section 252 provisions of the 2011 Federal Trade Adjustment Assistance Act (TAAEA).
image credit: Jerry Downs
Indiana's HB 1457
The new legislation amends Indiana's unemployment insurance (UI) law to conform with the Section 252 requirements of TAAEA. Section 252 requirements pertain to the overpayment of UI benefits caused either by an employer's failure to respond timely or adequately, or by fraud on the part of the claimant.
Indiana defines a "pattern of failure" as a repeated and documented failure by an employer or its agent, taking into consideration the number of failures in relation to the total number of benefit requests received by the employer or its agent. In other words, its not clearly defined (which could work for or against an employer based on the subjective interpretation of the Department of Workforce Development).
Employers are also now required to report new hires and re-hires (after a 60-day or more break) with a $25 civil penalty for failure to report.
Additionally, HB 1457 increases the new employer rate for employers in the construction industry. Instead of the 2.5% they have been paying, these employers will now pay 4% or the average of UI rates paid by all employers in the construction industry, whichever is less. In 2012, the weighted merit rate for construction industry employers was 5.9%.
HB 1457 requires benefit recipients to participate in reemployment and eligibility assessment activities when directed to do so by the Department of Workforce Development, and permits the Department to require proof of identification in order to participate in such activities.
15% of any interest and civil penalties collected from benefit recipients as a result of fraudulent claims will now be deposited in the unemployment insurance trust fund. (Currently, 100% of these funds are directed to the special employment and training services fund).
According to the National Federation of Independent Business, "there are features of [HB 1457] that will be good for small business and for the overall integrity of the unemployment insurance trust fund."
Other Indiana legislation recently signed into law include SB 506, which relates to UI and Professional Employer Organizations (PEOs). PEOs must use the client level reporting method for purposes of reporting and paying required contributions to the unemployment compensation fund unless the PEO elects the PEO level reporting method. Read more here.
Pending, but not yet passed, is HB 1009 which "provides that the commissioner of workforce development, after having computed the rate of contributions due from an employer from an estimate on the basis of the best evidence reasonably available, may increase or decrease the rate of contributions due from the employer on the basis of subsequently ascertained information." Keep up with the status of this legislation here.
Here is the most current available UI data for Indiana:
- Unemployment rate (as of March 2013): 8.7%
- Taxable wage base in 2013: $9,500
- Amount of state trust fund loans: $1,680,613,000.00
- Minimum weekly benefit: $50
- Maximum weekly benefit: $390
- Minimum tax rate: 0.535%
- Maximum tax rate: 7.918%
- Assessment provision: 8% of basic rate
- 2012 FUTA rate (paid in 2013): 1.50%
- Projected 2013 FUTA rate (to be paid in 2014): 1.80%
About Section 252
Section 252 measures are part of a larger effort by the federal government to address the growing U.S. deficit, and are specifically designed to help prevent the improper payments which have long been a drain on the unemployment insurance system.
Section 252's mandate is that states must require employers to respond timely and adequately to state requests for UI benefit information. Accordingly, when employers (or their agents) fail to respond timely and adequately and are responsible (in part or in whole) for improper payments being made to claimants, the employer's UI account must not be relieved of charges. The prohibition against relief of benefit charges applies to for-profit and non-profit employers alike.
Federal TAAEA law requires employers to be charged for UI benefit overpayments when there is a pattern or practice of failure to adequately and timely respond to state requests for information about UI benefit claims.
Read more about UI Integrity
With TAAEA's Section 252, the federal government has mandated the states to apply new, stricter rules and practices which place a greater burden on employers to respond quicker, respond better, be more on top of what their third party administrator (TPA) is doing on their behalf, and to be financially responsible for overpayments on unemployment claims charges whenever they hold any blame for the overpayment.
The TAAEA requires states to have UI integrity provisions in place by October 21, 2013, or risk losing the 5.4% maximum federal unemployment insurance (FUTA) credit for their state's employers. Many of the states' new laws are going into effect before the October 21st date.
Past DOL claims that 19% of UI benefit overpayments stem from employers' untimely response and/or inaccurate information were a major impetus to hold employers accountable for these overpayments. In 2011, the Department of Labor estimated that $14 billion dollars, or 11% of all UI claim payouts, were a result of overpayments. For more information, see our earlier blog post here.
If you are an employer with operations in the state of Indiana, now is an opportune time to ensure that your in-house and/or third party administrator is prepared to address the upcoming changes as a result of the newly-passed legislation. With this, Indiana joins the ranks of other states that have recently enacted UI Integrity legislation, including: CA, CO, HI, IA, ID, IL, KS, KY, MD, MN, MS, MT, NC, NE, NH, ND, NY, OK, SD, UT, VA, WV, and WY.
Employers in other states, be on the lookout for similar legislation soon headed your way.
Download our one page Fact Sheet on Section 252 to get a better understanding of key provisions that will directly impact employers.
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.