Unemployment “Insurance”?

The legislature and the courts have said that “the purpose of unemployment insurance” is to avoid the risk or hazards that befall those who, because of employment, are dependent upon others for their livelihood. These unemployment insurance programs have common threads loosely based on “insurance” but insurance is an imperfect analogy. Neither the employer nor the employee can choose the level of coverage; the employer cannot choose a higher or lower level of benefits, or a higher or lower deductible, or a longer or shorter exclusion period to vary the “premium”; and the employee cannot contribute to the “insurance” in order to obtain a more generous benefit. About ten years ago the legislature determined that the former unemployment “compensation” should be changed to insurance, and it is not clear why. Unlike all other insurance, where one has the freedom to choose to obtain or go naked, most employing units are required by law to pay a “contribution” to the state or federal government. This forced payment is a tax.

If the Wisconsin tax is not paid, the Federal Unemployment Tax Act (“FUTA”) imposes a federal tax at the current rate of 6.2% on compensation. If the Wisconsin tax is paid there is credit against the federal tax for amounts paid into the state which reduces the federal tax to .8% (8/10ths of one percent). Because Wisconsin meets the federal standards the credit can be more than what an employer actually pays the state if the employer’s contribution rate is favorable. The federal rate is imposed on the first $7,000 of each work’s “base” compensation each calendar year; so, for a worker making more than that amount, the range of an employer’s FUTA tax each year is between $56 and $434 per worker.

Each employer has a different rate of contribution to the state unemployment fund based on three components: an “experience rate,” a solvency rate, and an administrative rate. Combined, depending on the solvency of the total Wisconsin unemployment insurance fund, tax rates can vary from 0% to approximately 10% of the base compensation. The state base compensation is $12,000 of each calendar year so for a worker earning more than that amount the range for an employer’s state tax each year is between $0 and approximately $1,200 per worker (FUTA and state combined together maximum is just over $1,250 per calendar year per work).

Each eligible employee that meets the unemployment insurance requirements receives a minimum weekly benefit of $79 and a maximum benefit of $383 per week which includes the $25 additional federal benefit beginning February 23, 2009. The number of weeks an eligible employee can receive benefits starts at a basic 26 weeks but both Wisconsin and FUTA extend the benefits for additional weeks during periods of high unemployment rates; benefits have been extended by an additional 33 weeks so that there are a total of 59 weeks of benefits now available.

More information about unemployment and other business topics may be obtained by attending the Pinkert Law Firm LLP Third Annual Law Affecting Business (“LAB”) presentation on Friday, April 17, 2009 at the Stone Harbor Resort in Sturgeon Bay, beginning at 8:00 am, by registering electronically at http://www.pinkertlawfirm.com or calling 920.743.6505 and asking for Laura. Presentation will be from the perspective of an employer. Other topics include hiring and firing, buying commercial or industrial real estate, and collections.