1. Welcome to Workforce 3 One U.S. Department of Labor Employment and Training Administration Webinar Date: 11/14/2014 Presented by: Office of Unemployment Insurance U.S. Department of Labor Employment and Training Administration

2. 2# Enter your location in the Chat window – lower left of screen

3. 3# What is SUTA dumping? How Employers SUTA dump Examples of SUTA dumping A.Affiliated Shell (Mandatory Transfer) B.Purchased Shell (Prohibited Transfer) Common Characteristics SUTA Dumping Detection Systems (SDDS) SUTA dumping reporting on the ETA 581 report A.Items 59, 60, and 61 SUTA dumping and PEOs Current status of state SUTA dumping activity

4. Moderator: Tom Crowley Title: UI Tax Chief Organization: ETA OUI 4#

5. Presenter: Alex Farach Title: UI Program Specialist Organization: ETA OUI 5 Presenter: Tom Crowley Title: UI Tax Chief Organization: ETA OUI

6. An employer’s Unemployment Insurance (UI) tax rate (and payment) is generally determined by experience rating. The more relative ‘experience’ an employer has with layoffs, the higher your UI rate. A.If an employer has no/low employee turnover  minimum/low UI tax (experience) rate. B.If an employer has frequent/high employee turnover  high UI tax (experience) rate. SUTA dumping occurs when employers in group B above move wages to group A for the sole purpose of inheriting group A’s low rate. SUTA dumping is illegal – it violates State and Federal law

7. Employee Misclassification Underreporting Payroll Failure to Report Successions Buffering Payrolling or Payroll Parking Affiliated Shell Transaction (Mandatory Transfer) Affiliated Shell Transaction (Mandatory Transfer) Purchased Shell Transaction (Prohibited Transfer) Purchased Shell Transaction (Prohibited Transfer)

8. Established Company (A) has a high UI tax rate because they have a high employee turnover rate. They don’t like this so they form subsidiary Company (B). Company (B) gets a new UI account number and then reports >= 1 employees until it has a reduced rate...then… 2010 = 4% NEW 2011 = 4% New 2012 = 1% earned 2013 = 1% earned UC Tax rate = 5%

9. Established Company (A) has a high UI tax rate because they have a high employee turnover rate. They don’t like this so they form subsidiary Company (B). Company (B) gets a new UI account number and then reports >= 1 employees until it has a reduced rate...then… UI Tax rate = 5% 2012 = 1%!! Time to move all the employees!!

10. A large national corporation submitted requests to many (all?) states to reorganize their business. They requested to: Split one UI employer account into 3 new accounts; The corporation admitted to common ownership, management, and control of the old account and the 3 new accounts Is this SUTA dumping? Yes – this violates Section 303(k)(1)(A) - that if an employer transfers its business to another employer, and both employers are (at the time of transfer) under substantially common ownership, management, or control, then the unemployment experience attributable to the transferred business shall also be transferred to (and combined with the unemployment experience attributable to) the employer to whom such business is so transferred,

11. NEW Company (A) is starting up. They have a large payroll and should be assigned a new employer rate, higher than the state’s minimum UI rate…. …Company (A) doesn’t want to pay the higher new employer UI rate, so they buy Company (B) for the sole purpose of avoiding payment at the higher rate.

12. Common Ownership …….. ……... …….. Information about the business is difficult to come by…a Google search leads nowhere. Most businesses will have an online presence. A higher than average UI Tax rate. Industry has a high employee turnover rate. Large % of employee movement between 2 businesses.

13. What is SUTA Dumping? How employers SUTA Dump – two scheme types mentioned here today –Affiliated Shell Transaction (Mandatory Transfer) –Purchased Shell Transactions (Prohibited Transfer)

14. 14# Presenter: Alex Farach Title: UI Program Specialist Organization: ETA OUI

15. Use an automated SUTA Dumping Detection System (SDDS) quarterly and investigate employers who may be SUTA Dumping. Report activity on the ETA 581 Report Quarterly Conduct a TPS Program Review of SUTA Dumping Activities

16. To identify employers that may warrant a transfer or removal of unemployment experience, which were not previously identified by regular status determinations. Important: A state’s use of an automated SUTA Dumping Detection System (SDDS) was a Core Integrity Activity for determining a state’s eligibility for 2012 supplemental funding opportunities Only states that used, or committed to using an automated SUTA Dumping Detection System by December 31, 2012 were eligible to receive any of these supplemental funds from the U.S. Department of Labor.

17. How many times did your SUTA dumping investigations result in having to transfer UI tax experience? –Include full and partial mandatory transfers of UI experience –Include mandatory transfers of UI even if the transfer did not result in changes to old contribution rates. –Exclude mandatory transfers identified in the normal process of making regular status determinations. Old rate: 4% SUTA rate: 4% New rate: 5% Old rate: 4% New rate: 4% (same) SUTA rate: 4% New rate: 4% (same)

18. How many times did your SUTA dumping investigations result in having to prohibit UI tax experience transfers? –Count all employers prohibited from inheriting UI experience, in whole or even in part! –Exclude prohibited transfers identified in the normal process of making regular status determinations. Old rate: 4% SUTA rate: 2% New rate: 5%New rate: 4% Tip offs from Litigation or a Field Audit are not part of regular status determinations.

19. Use SDDS to filter results to those more likely to be SUTA dumpers Determine whether the companies are under common ownership, management, or control; OR A new company that acquired another company solely to obtain a lower tax rate. Common ownership: –Internet, state records, UI registration information, etc Solely to obtain lower tax rate: –No transfer of wages between accounts –look for dramatic increases in wages in a single account –Change in ownership, management, or control w/o entity change –Intent – tough to define

20. Total amount of contributions due, less the amount of contributions overpaid. Do not include net contributions estimated after report quarter! Contributions due on taxable wages before rates were changed Contributions due on taxable wages after rates were changed

21. What are the state’s responsibilities? What is an SDDS? Why is it needed? ETA 581 SUTA Dumping Items –Item 59 –Item 60 –Item 61

23. 23 Presenter: Tom Crowley Title: UI Tax Chief Organization: ETA OUI

24. Professional Employer Organizations (PEO’s) – provide owners and operators of small businesses assistance with their human resources and payroll functions. Who is the employer, the PEO or the Employer? Is there a co-employment relationship? –Each state is different –This affects UC Experience Rate The result: employers with high tax rates can contract with a PEO. The PEO could then absorb the workforce, which would be taxed at the PEO’s UI tax rate, presumably at a lower rate. –Many states do not require employers to transfer experience to the PEO –Since there is no common ownership – SUTA dumping does not apply, UNLESS PEOs move employment among commonly- owned PEOs

25. Year Number of Mandatory Transfers Number of Prohibited Transfers Total Net Contributions Due 20112,36071$40,886,903 20123,993138$26,972,239 20133,84973$29,667,593

26. EVALUATION OF STATE IMPLEMENTATION OF SECTION 303(K), SSA (in depth SUTA report): http://wdr.doleta.gov/research/keyword.cf m?fuseaction=dsp_resultDetails&pub_id =2361&mp=y http://wdr.doleta.gov/research/keyword.cf m?fuseaction=dsp_resultDetails&pub_id =2361&mp=y SUTA Dumping UIPL: http://wdr.doleta.gov/directives/attach/UI PL/UIPL02-11acc.pdf http://wdr.doleta.gov/directives/attach/UI PL/UIPL02-11acc.pdf

27. 27#

28. Tom Crowley, UI Tax Chief, Crowley.thomas@dol.gov Phone 202.693.3203 Joe Toth, UI Program Specialist, Toth.joseph@dol.gov Phone 202.693.3894 28# Derrick Holmes, Workforce Analyst, Holmes.derrick@dol.gov Phone 202.693.3205 Alex Farach, UI Program Specialist, Farach.Alexander.R@dol.gov Phone 202.693.3741

29. the 29# Tuesday, 11/18/2014 3:00 PM

30. Thank You! Find resources for workforce system success at: www.workforce3one.org 30#