Employers aren't required to pay direct unemployment costs, its an insurance program. There's also no requirement to hire a temp either.
Except employers are required to buy unemployment insurance in most States (in NY for example, just having one employee you are required to buy it). Adding a middle man to the process doesn't alleviate the issue.
But even then, one big question looms.
Why is this the government's business?
I would like to correct both of you.
@LongmireYou are correct that employers do not directly pay the unemployment benefits paid to former employees who have successfully filed unemployment claims, but the employer’s experience rating, i.e. the rate (%) they are charged for the unemployment tax is directly related to the number of claims and benefits paid out and how much the employer has in reserve (i.e. the amount of $’s the employer has paid in to the system vs. the $ amount of claims paid out.) The fewer the claims and the higher their reserves, the lower their rate and visa versa.
I know of no state where unemployment tax is not mandatory or where there is an option to purchase a privately administered unemployment “insurance” policy. There is no such animal.
Unemployment, while it called “insurance” is actually a payroll tax assessed and collected by the state government and the federal government.
1st there is the state unemployment tax - (SUI or sometimes referred to as SUTA). Each employer is assigned an employment tax rate through their state government’s unemployment office. The rate is determined primarily by the employer’s experience rating, i.e. the number of approved unemployment claims (the more people they let go or layoff who end up receiving benefits, the higher the rate) and to an extent it is also based on their industry and is subject to change, up or down on an annual or even quarterly basis. New employers pay an introductory rate.
Each state determines the annual wage cap. For instance, here in PA the unemployment tax is calculated on the first $9,500 of gross wages paid to each employee each year (and going up to $10,000 in 2017). And here in PA the employee also pays 0.07 percent of their gross wages via a payroll deduction, just like any other tax, but there is no wage cap on the employee portion. The only states that currently also tax the employee are Alaska, New Jersey, and Pennsylvania. The wage cap applies to each employer paying wages to each employee. If I change my employer mid-year, the wage cap starts all over with the new employer, i.e. the new employer doesn’t get a credit for my wages paid nor for the unemployment taxes paid by my former employer even if I previously met the wage cap.
It also needs to be noted that several states are still assessing an unemployment tax surcharge. This is to pay back the federal government loans when it mandated extended unemployment benefits some years back that the state unemployment funds did not have to pay out.
Then there is Federal Unemployment Tax (FUTA)
FUTA is tax of 6.0% minus a credit if the employer has paid into a state unemployment fund. If an employer is allowed the maximum credit of 5.4%, then the federal unemployment tax rate will be 0.6%. This rate is then applied to each employee's first $7,000 of annual gross wages.
Each quarter the employer files a state unemployment return, and annually a federal unemployment return (form 940) but the taxes are remitted quarterly in most cases (a few states now require monthly filings and remittances).
See here for how it is calculated (note they are incorrect in saying “There is no withholding from an employee's salary or wages for the state unemployment tax.” as I noted above.)
http://www.accountingcoach.com/payroll-accounting/explanation/4@AbaraXasWhat you may be thinking of in NY is the state mandated disability insurance (SDI). That is separate and different and above NY unemployment tax. It is similar to a private short term disability insurance (STD) plan. California, Hawaii, New Jersey, New York and Rhode Island. Puerto Rico have mandatory disability insurance requirements.
NY SDI can be paid to the state of NY or through an approved private insurer and may in some companies run concurrent with their group STD and LTD insurance plans if they offer them.
Note that many companies offer STD, and most of those plans cover maternity leave (yes, having and recovering from having a baby is considered a “disability” for STD insurance purposes) and STD pays, depending on the plan and the employee’s salary or position, a % of salary (50%. 60% 70%, etc. some even up to 100%) and typically for up to 6 to 8 weeks. Some of these plans have a waiting period, typically a week or two and requires the employee to exhaust PTO or sick time prior to receiving benefits and once benefits kick in, they may allow the employee to use accrued PTO to cover the % of pay not paid by the STD plan so as true up to 100% of their salary. And if the woman stays out of work after exhausting her STD benefits and then using FMLA for up to another 6 to 4 weeks, she may be required her to exhaust accrued PTO or sick leave before taking the FMLA as unpaid.
So the way I read this, unless I am wrong, giving women maternity related unemployment benefits would not apply to those covered by a STD plan or other employer provided paid maternity leave plans if separate from or running concurrent with an STD plan. So if I am covered by a STD plan paying 50% of salary, will Trump’s plan allow me to file for maternity unemployment for the difference?
My other question is who pays the maternity related unemployment benefits – the state or the federal government unemployment programs or both? (And really there is only state unemployment benefits – the Federal unemployment taxes (FUTA) assessed and collected are apportioned back to the state programs). And how would maternity related unemployment claims effect the employer’s experience rating. i.e. their unemployment tax rate? In either case I cannot believe that the employer rate will not be effected.
Next, I would think that just as with an STD plan and when claiming FMLA, there would have to be some sort of verification process. I know that with STD and FMLA, that involves the woman completing forms and giving the name of their doctor who then in turn has to provide information to the insurer and or FMLA administrator often along with the company’s benefit or HR department. And with STD and FMLA, the employer has to verify the first day off from work and report the first day returned to work, often follow up when information is not returned in a timely manner or hand hold the employee through the application process, etc. so I know firsthand that there is an administrative burden on the employer and would not imagine this would be any different.
As to reducing “fraud”, that certainly exists but states have become increasing aggressive in tracking that down. I know at my last employer, where I was among many other things, I was in charge of completing requests not only on initial unemployment claims but to verify for on-going claims. It was not unusual after a terminated employee had been out on unemployment for several weeks for me to get (yet another) form to complete (in PA for each initial unemployment claim I had to complete 2 if not 3 forms, often asking the very same questions) and send back to the PA unemployment division. This time they wanted to know within a specific date range, for each week in that range, what we paid in wages, commissions, in PTO payouts, in severance, whether or not we were aware that our former employee had taken a job somewhere else, to confirm their last known address and phone number. That is not to say that fraud was suspected but seemed to be a random check to see if the claimant had been honest about reporting any post termination pay.
Aside from that, I don’t know how else to crack down on fraud. FWIW, all states I have worked with have a “new hire registry”. One of the purposes is to alert state agencies of when an employee owing child support or having a state tax lien becomes employed again (and yes, this is shared on a national level) but the other reason is to notify the state’s unemployment department so that unemployment benefits stop in case the claimant doesn’t report it and tries to continue receiving benefits. But that is as I understand not always fool proof.
But cracking down and prosecuting fraud and recovering fraudulent payments isn’t in itself without costs, the costs of investigators, prosecutors, administering re-payment plans. For every dollar fraudulently paid out and recovered, there is a cost involved in getting it back.
I will post some more thoughts on Trump’s plan when I get a chance.
