Changes in State Unemployment Insurance Legislation in 2005: State Enactments Include State Unemployment Tax Act (SUTA) Dumping Provisions, Modified Voluntary Quit and Noncharging Provisions for Situations Involving Service Members, and Modified Pension Offset Provisions for Treating Social Security Retirement Benefits

Article excerpt

One Federal enactment affected the Federal-State unemployment insurance program during 2005. The QI, TMA, and Abstinence Programs Extension and Hurricane Katrina Unemployment Relief Act of 2005 (EL. 109-91) included two provisions impacting the unemployment compensation program. Under the Act, $500 million was transferred from the Federal Unemployment Account in the Unemployment Trust Fund to the accounts of Alabama ($15 million), Louisiana ($400 million), and Mississippi ($85 million) to assist the States in meeting benefit payment obligations following Hurricane Katrina. The Act also permits any State, on or after August 28, 2005, to use unemployment insurance administrative funds on behalf of any other State to assist workers seeking unemployment insurance if a major disaster was declared as a result of Hurricane Katrina in such other State or any area in such other State.

The following is a summary of some State unemployment insurance legislation enacted in 2005.


Coverage. Provisions have been established relating to professional employer organizations (PEOS), which, among other things, require that beginning March 1, 2006, every PEO in Arizona must file an initial registration with the Secretary of State, pay a registration fee, and either maintain a net worth of $100,000 or obtain a bond or securities worth $100,000.

The term "professional employer services" is defined to mean the service of entering into a coemployment relationship in which all or a majority of the employees who provide services to a client or to a division or work unit of the client are covered employees.

A client must be solely responsible for directing, supervising, training, and controlling the work of covered employees with respect to the business activities of the client.

Unless otherwise expressly agreed to by a client in a professional employment agreement, a client shall maintain the right to direct and control the professional or licensed activities of the covered employees and the client's business.

A covered employee who is required to be licensed, registered, or certified under the laws of Arizona will be deemed an employee of the client for purposes of the license, registration, or certification requirement.

Financing. The PEO must pay the wages of covered employees, to withhold, collect, report, and remit payroll-related and unemployment taxes and to make payment for employee benefits for covered employees.

A PEO must report and pay all required contributions to the unemployment compensation fund using the State employer account number and the contribution rate of the PEO.

For the purposes of tax credits and any other economic incentives provided by Arizona that are based on employment, covered employees will be deemed employees of either the client or the PEO; either the client or the PEO, but not both, will be entitled to the benefit of any tax credit, economic incentive or any other benefit resulting from the employment of covered employees of the client; if the amount of any credit or incentive is based on the number of employees, only the covered employees who actually work for the client will be considered employed, and the covered employees who work for other clients of the PEO will not be considered.

Civil penalties will be imposed when a person knowingly provides false or fraudulent information, collects certain payments and fails to remit the funds, fraudulently or falsely procures or attempts to procure services or benefits from a registered PEO without having adequate monies to compensate the PEO, willfully fails to comply with any requirement, and knowingly makes a material misrepresentation.

On termination of a contract between a PEO and a client or the failure by a PEO to submit reports or make tax payments as required, the client will be treated as a new employer without a previous experience record if the client has been subject to a professional employer agreement for at least 2 years or if the client is not otherwise eligible for an experience rating. …