In 2009, North Carolina, like more than half of the states in the U.S., borrowed money from the federal government to pay claims for unemployment compensation benefits. On February 19, 2013, North Carolina enacted a comprehensive reform to its unemployment insurance statute aimed at paying down that debt – totaling more than $2 billion. Under the statute, the debt owed to the federal government is expected to be paid off three years early (in 2016). The new law, North Carolina Session Law 2013-2, takes effect July 1, 2013.
To generate the revenue needed to repay the federal government and rebuild the state's unemployment insurance fund, the plan provides for the following financing changes that will directly impact North Carolina employers:
- Required contribution to the Unemployment Insurance Fund: A surtax equal to 20% of the contributions due from each employer will be imposed until the balance in the Unemployment Trust Fund equals at least $1 billion, projected to occur in 2017. (N.C. Gen. Stat. § 96-9.7.)
- State unemployment tax (SUTA) rate: The minimum tax rate for employers has been increased from 0.0% to 0.06% of taxable wages, while the maximum tax rate has been increased from 5.7% to 5.76% of the taxable wages. (N.C. Gen. Stat. § 96-9.2(c).) (The new tax rates go into effect in January 2014.)
The new law also includes a host of administrative, benefit, and program changes that will impact North Carolina employers and claimants. Changes include:
- New method for calculating unemployment tax: Under the new law, tax rates will be calculated by a statutory formula found at N.C. Gen. Stat. § 96-9.2, rather than the tax schedules under the old law. The percentage an employer must pay is determined by the employer's base rate and the balance of the Unemployment Insurance Fund at the time the tax rate is calculated. (N.C. Gen. Stat. § 96-9.2(a).)
- Non-compliance penalty: To comply with federal law, the new law includes a penalty, which prohibits the release of benefit charges when an erroneous payment is made to a claimant because the employer failed to respond to a timely request for information concerning a claim. (N.C. Gen. Stat. § 96-11.4.) The penalty applies to employers that have exhibited a pattern of failing to "timely" or "adequately" respond to a request for information. The effective date of this provision is October 21, 2013, the date required by federal law.
- New limitations on filing attached claims: "Attached claims" (i.e., clams for an employee that an employer intended to keep on the payroll) account for approximately 45% of the claims for unemployment benefits. The new law places limitations on which employers will be allowed to file attached claims and restricts how those claims are processed. Significantly, only employers that have a positive account balance will be allowed to file attached claims. If an employer wishes to file an attached claim and has a negative balance, the employer will have to make a voluntary contribution to the Unemployment Insurance Fund in an amount sufficient to bring its account balance to zero or better. (N.C. Gen. Stat. § 96-15(a1).)
- Waiting week required for each claim filed: The new law requires a claimant to wait one week for each claim filed during a benefit year before receiving a benefit, rather than waiting one week per benefit year. (N.C. Gen. Stat. § 96-14.1(b).)
- Reduction in maximum weekly benefit amount: The new law reduces the maximum weekly benefit amount from $535 to $350. (N.C. Gen. Stat. § 96-14.2(a).)
- New method for calculating weekly benefit amount: The new law bases the weekly benefit amount on the average of the last two quarters worked, rather than basing it on the high quarter.
- Reduction in duration for receiving unemployment insurance: The new law reduces the maximum duration of unemployment benefits from 26 weeks to 20 weeks. The duration will be tied to the seasonally adjusted unemployment rate. (N.C. Gen. Stat. § 96-14.3.)
- Elimination of health and disability exclusion and "substantial fault" provision: Under the "substantial fault" standard, an individual could qualify for a reduced number of weeks of unemployment benefits if the reason for separation was, in part, due to the individual's conduct, but the fault did not rise to the level of misconduct. The new law removes the substantial fault provision entirely and the claimant will either qualify or not qualify for benefits – i.e., an individual will not be able to qualify for a reduced number of weeks.
- New definition of suitable work: After the tenth week of the benefit period, any employment offering 120% of the individual's weekly benefit amount will be considered suitable work. (N.C. Gen. Stat. § 96-14.9.) This means that part time work may be deemed suitable work if it meets the requirements set out in N.C. Gen. Stat. § 96-14.9.
- Changes to "good cause" reasons for leaving work: The new law eliminates all but two of the reasons for which an individual could voluntarily quit work and still qualify for unemployment benefits. (N.C. Gen. Stat. § 96-14.5.) Military spouse relocation and domestic violence were retained as "good causes" for leaving work. (N.C. Gen. Stat. § 96-14.8.) Other causes for leaving work must be determined on a case-by-case basis. The reasons eliminated include: bankruptcy, impending closures, spousal relocation, disability or other health concern, whether or not it is related to work, disability or health concern of minor child, aged parents or a disabled immediate family member, inability to accept work during a particular shift because of concerns related to child care, elder care, or care of disabled family member.
- Change to disciplinary suspension provision: Under the new law, an individual may qualify for benefits if the individual has been placed on disciplinary suspension for more than 30 consecutive days, which was increased from 10 consecutive days under the old law. (N.C. Gen. Stat. § 96-14.9(d)(4).)
- Change in "reduced hours" provision: Under the new law, an individual may qualify for benefits if the individual's work hours have been reduced by more than 50% as opposed to the 20% reduction under the old law – as part of a unilateral and permanent reduction of work hours. (N.C. Gen. Stat. § 96-14.8.)
In addition to the foregoing changes, the federal extension of unemployment benefits, also known as the Emergency Unemployment Compensation Program (EUC), will end in North Carolina on June 30, 2013. The last EUC payment will be for the week of unemployment ending on June 29, 2013.
Recommendations for Employers
North Carolina employers should ensure that their internal stakeholders are aware of and comply with these new requirements. Given the tax rate changes, employers should closely review the unemployment insurance tax rate calculation for the succeeding calendar year, which is issued by the Division of Employment Security, and address any errors that may exist. In addition, because North Carolina unemployment insurance tax rates are determined under an experience rating system, employers should timely and completely respond to the Division of Employment Security's request for separation information and be prepared to defend claims for unemployment benefits.
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