Unemployment changes compared
Posted February 4, 2013
Raleigh, N.C. — North Carolina lawmakers are contemplating changes to how the state's unemployment system works.
One of the primary drivers of the new legislation is a $2.5 billion debt the state owes the federal government. That money was borrowed to pay state unemployment claims during the recession and has triggered tax increases on North Carolina employers.
The bill under consideration changes multiple aspects of the unemployment system. For example, it changes how certain unemployment funds are used and eliminates some reasons for not holding a job that would allow a worker to draw benefits.
Fully comparing any two sets of options can be a complicated affair, as a report from the W.E. Upjohn Institute for Employment Research demonstrates. However, all of the options involve some changes to the value and duration of benefits and how much employers pay in taxes.
The following summaries describe the basic benefits and costs to unemployed workers and North Carolina companies under the state's current law, the bill the state House is scheduled to vote on Monday and another compromise plan.
Benefits: The maximum weekly benefit is $535 per week. The maximum duration of state-funded benefits is 26 weeks, although federal emergency benefits are currently available to North Carolina workers for a total of an additional 73 weeks.
Federal tax: Employers in the state pay both federal and state unemployment taxes. Under the best possible conditions, the federal unemployment tax (FUTA) would be $42 per worker per year. But because the state has an outstanding debt to the federal government, that amount has gone up to $82 per worker per year in 2013. The FUTA tax will climb $21 per worker per year until the debt is paid off.
If North Carolina makes no changes to its unemployment system, FUTA taxes would rise to $189 per employee per year in 2018 and then return to $42 in 2019.
State tax: Employers also pay a state unemployment tax (SUTA). That rate varies depending on the employer's history and other factors. The rate now ranges from 0 to 5.7 percent of an employee's taxable wages, up to $20,900. There is also a surtax charged on the total amount of SUTA taxes an employer pays. However, an employer paying no SUTA tax would also pay no surtax.
House Bill 4 as of Feb. 4
The bill, which appears likely to clear the House and move to the Senate the week of Feb. 4, repays the debt more quickly. Businesses advocates point out that it raises state unemployment taxes while restructuring benefits. They say lowering the unemployment tax per worker will make it cheaper to fill jobs. Opponents of the measure say workers would lose more in benefits than the state would raise in taxes through 2017. Opponents also point out that, while the "pain" of changes to unemployment benefits will be permanent, businesses will see increased tax burdens drop in 2017 and afterward.
Benefits: The maximum weekly benefits would decline from $535 to $350 per week. The bill also changes how those benefits are calculated, so workers who lost hours or otherwise saw their pay reduced in the most recent fiscal quarter would also be eligible for less of a weekly benefit check. The maximum duration of state-funded unemployment benefits would be 20 weeks during the highest periods of unemployment.
If North Carolina changes its benefits, unemployed workers would no longer be eligible for long-term federal unemployment benefits that now kick in after 26 weeks.
Federal tax: House Bill 4 would repay the state's debt to the federal government three years more quickly. After reaching a maximum of $126 per worker per year before returning to $42 in 2016, as opposed to 2019.
State tax: SUTA taxes would rise for all employers under House Bill 4. The lowest rate possible would be 0.6 percent, so no employers would be exempt from paying something. For those paying the lowest possible rate, that would mean a change from paying nothing to $15.05 per year per worker between both the SUTA tax and applicable surtax. Once the state's unemployment fund has a balance of $1 billion to pay claims, the surtax would be eliminated, and employers would pay slightly less per worker per year.
Rep. Paul Tine, D-Dare, offered an amendment to House Bill 4 that would have granted more generous unemployment benefits, which were paid for by raising the SUTA tax more. It is not the only proposed amendment, but represents what many advocates for the unemployed describe as a "more balanced" approach. The bill was voted down on a party-line vote. Republicans, who who opposed the measure on Jan. 31, say it would take the bill "out of balance."
Benefits: The maximum weekly benefits under the Tine amendment would decline from $535 to $425 per week. Tine's amendment would have left questions of duration of benefits and how they were calculated unchanged from the current version of House Bill 4. A separate amendment by Rep. Deborah Ross, D-Wake, would have changed how a worker's maximum benefit was calculated back to the current system, which would have treated some workers more favorably. That amendment also failed.
Federal tax: Tine's amendment would not have affected the bill's efforts to repay the federal debt, so as with the current draft of House Bill 4, it would repay the state's debt to the federal government three years more quickly. After reaching a maximum of $126 per worker per year, the tax would return to $42 per worker per year in 2016, three years ahead of the do-nothing option.
State tax: Tine's amendment paid for the more generous benefits by raising the SUTA tax. Under his proposal, the minimum possible per worker SUTA tax would be $52.67, as opposed to $15.05 under the current version of House Bill 4. As with the current version of the bill, the surtax would drop off after the state's unemployment fund had a balance of $1 billion to pay claims, meaning employers would pay slightly less per worker.