MANAGEMENT INFORMATION RELEASE
FROM: Sloan, Montgomery, Gregory & Hall, Inc.
SUBJECTS: Employers Will Receive 2019 Unemployment Tax Rate Notices This Month; Unemployment Payments Following Hurricane Florence
DATE: November 2018
The South Carolina Department of Employment and Workforce, and the North Carolina Division of Employment Security will be issuing 2019 unemployment tax rate statements during the month of November. The most recent experience year ended on June 30, 2018.
Employers in South Carolina pay unemployment tax on the first $14,000.00 of wages earned by each employee during the year. There are currently 20 tax rate classes, which range from a low of 0.06% or $8.40 per employee per year to a high of 5.46% or $764.40 per employee who earns at least $14,000.00 in wages in a calendar year. The tax rate an employer pays is based on the dollar amount of unemployment benefits the South Carolina Department of Employment and Workforce paid to eligible current or former employees during the three most recently completed experience years, which end on June 30th.
Employers who have no chargeable unemployment benefits paid to former employees during this three year period automatically qualify for tax class 1 and the lowest tax of $8.40 per employee. A small company with 20 employees would pay only $168.00 in annual unemployment taxes. But let’s look at that same company if just one former employee is awarded benefits during the most recent three year period. The employee could potentially receive $326.00 in weekly unemployment compensation for up to 20 weeks, or $6,520.00 in total benefits. Based on the recently released 2019 tax brackets, the chart below shows the estimated tax impact if an employee receives benefits
Maximum weekly benefit – $326.00
Annual amount paid by company with no charges – $168.00*
Weeks Total New Tax New Annual
Paid Benefits Rate Tax*
1 $326.00 $62.58 $1,251.60
6 $1,956.00 $284.34 $5,686.80
20 $6,520.00 $428.96 $8,579.20
* Based on 20 employees who earn the full base wage of $14,000.00 in a calendar year.
Keep in mind that the new annual tax will apply for at least three years, as this is the time frame for any benefit experience to roll off of the look-back period. The tax rates for each class are reset each year so the figures above only reflect 2019. These figures clearly underscore the need to handle every separation properly, as even a single successful claim will result in a tax increase many times higher than the amount paid to the former employee in benefits over the three year period.
Page 2 November 1, 2018
In North Carolina, 2018 unemployment taxes range from a low of $14.10 to a maximum of $1,353.60 per employee who earns at least $23,500.00 in a calendar year. The formula the state uses to determine an employee’s tax rate is different than South Carolina’s, but it is still based on unemployment benefits paid to former employees.
We often talk with company owners who don’t know what they are paying in unemployment taxes and are surprised when we show them their tax rate and the total annual cost. We stress to employers that this is one of the few instances where a business tax rate can be controlled.
We have also had many managers tell us, “It is cheaper to get the person out of here and let them collect unemployment than to keep them and go through the process of counseling, documenting and building a case to justify termination.” This is not always the case anymore under the unemployment tax systems in the Carolinas.
If you are a South Carolina employer and are not in tax class 1 with the $8.40 per employee rate, or a North Carolina employer and not paying the $14.10 per employee rate, you should take a long look at how employee terminations are being handled. Managers should be held accountable for properly documenting employee performance and behavior issues and for having a record of employee counseling prior to separation. Terminations without prior counseling or documentation should be limited to incidents of gross misconduct, such as theft, dishonesty, acts or threats of violence, intoxication at work, etc.
If your company is paying the lowest tax rate, pat yourself on the back, but remember that just one chargeable unemployment claim will significantly increase your taxes the following year and for two years after that. If your company is not paying the lowest tax rate, give us a call and let’s discuss the steps, such as management training on proper discipline and separation practices, that can be taken to lower your unemployment costs.
Keep an Eye on Unemployment Payments Following Hurricane Florence
In the days prior to the landfall of Hurricane Florence and following the subsequent flooding, many employers in the Carolinas were closed for a period of time. In response, the federal government made Disaster Unemployment Assistance (DUA) available to employees who could not work during this time.
While the funds came from the federal unemployment reserves, affected employees were required to initially file state claims for benefits. When these claims were procedurally denied, information was to be provided as to how to apply for DUA benefits. Unfortunately, as was bound to happen, state benefits were mistakenly awarded to employees in some circumstances. As discussed above, this payment has the potential to adversely affect a company’s state unemployment for three years.
If a notice is received from North or South Carolina unemployment showing benefits paid in the third quarter to an employee who was out of work only because of storm closure, be sure to contact our office so that every attempt can be made to get this resolved.
If you have questions regarding the topics covered in this Information Release, you may contact our firm, Sloan, Montgomery, Gregory & Hall, Inc., at (803) 782-9246.
This bulletin is provided as a service to clients and is only to give information of a general nature. It is not intended as, nor should it be considered, legal advice or opinion.