Final 4-09-2008

EVALUATION OF STATE IMPLEMENTATION OF SECTION 303(K), SSA FINAL REPORT
Prepared for: U.S. Department of Labor Employment and Training Administration Prepared by:
Coffey Communications, LLC Bethesda, aryland Authors:
Urban !nstitute "ashington, D.C.
Lester Coffey, #ro$ect Director "ayne %roman, #h.D., Lead #rincipal !n&estigator ichael 'e, #h.D., Co(#rincipal !n&estigator E.A. )*ett+ ,ensley, Tas- Leader *ichard Sulli&an, Tas- Leader "illiam .. Sulli&an, /r., Senior *esearcher La0rence Chimerine, #h.D., Contributing Author
This pro$ect has been funded, either 0holly or in part, 0ith .ederal funds from the Department of Labor, Employment and Training Administration under Contract 1umber D2L/345A63748, Tas- 2rder 97. The contents
of this publication do not necessarily reflect the &ie0s or policies of the Department of Labor, nor does mention of trade names, commercial products, or organi:ations imply endorsement of same by the U.S. ;o&ernment.
ACKNOWLEDGEMENTS
The contributors to this report 0ere many. .rom the 2ffice of #olicy De&elopment and *esearch, <e&in Culp, Da&id Balducchi, and "ayne ;ordon pro&ided o&erall direction and perspecti&e that helped to refine the scope of the study. "e are also grateful to the 2ffice of "or-force Security, in particular, ;erard ,ildebrand, Ste&en assey, Thomas Cro0ley, and Bill "hitt for their in&aluable assistance and support throughout the pro$ect. !n addition, 0e than- Timothy Tuc-er, Director of ;o&ernment Affairs, 1ational Association of #rofessional Employer 2rgani:ations =1A#E2>? *ussell 1oac-, !ndustry *epresentati&e in the California Legislature, #ublic #olicy Associates? ;regory L. #ac-er, #resident, The Association of ichigan #E2s? Abram .in-elstein, #resident of the .lorida Association of #rofessional Employer 2rgani:ations =.A#E2>? i-e iller, Attorney, .A#E2? and all of the #rofessional Employer 2rgani:ation =#E2> industry representati&es 0ho participated in this pro$ect by attending round table discussions 0ith the Coffey Communications team in Te@as, ichigan, California, and .lorida "e are also deeply grateful to the state of Te@as for ser&ing as the pilot state in this pro$ect and to ichigan, Utah, 1e0 ,ampshire, California, "ashington, and .lorida for ta-ing the time to allo0 the Coffey team to &isit and discuss at length the SUTA dumping detection and enforcement practices in each state. .inally, 0e than- all 83 states, the District of Columbia, #uerto *ico, and the %irgin !slands for their promptness in completing the sur&ey and pro&iding the data and information necessary to conduct the study. Their 533 percent participation is an e@cellent indicator of ho0 serious the State "or-force Agencies &ie0 SUTA dumping and this research pro$ect.
TABLE OF CONTENTS
Executive Summary Cha ter !" I#tr$%ucti$# a#% Bac&'r$u#% Study Approach Bac-ground Ta@ A&oidance Acti&ity and #re&enti&e Legislation Section 737=-> of the Social Security Act Effecti&eness of the Legislation StatesB *ecommendations for 1e0 .ederal Legislation The SUTA Dumping Detection System Literature #ro&iding !mpetus for !nterest in SUTA Dumping Cha ter (" State A'e#cy E#)$rceme#t*Structure a#% Re+$urce+ ;eneral 2bser&ations State Enforcement Structure State Staffing and *esource !ssues Staff Training 2ngoing Costs of !mplementation Cha ter ," Eva-uati$# $) Im -eme#tati$# Strate'ie+ !ntroduction SUTA Dumping Enforcement #rocess Analysis of Cases and *esults *eported by States Employers Determined to Be in %iolation of Section 737=->, SSA Assessments and *eco&eries Appeals Summary Cha ter ."Im act+ $) Secti$# ,/,0&12 SSA2 $# the PEO I#%u+try Description of the #E2 !ndustry Unemployment Compensation E@perience *ating and the #E2 !ndustry Estimated .inancial !mpact of #E2s on State Accounts in the Unemployment Trust .und and on 2perations of the UC Agency #re&ention of SUTA DumpingF #E2 Case %iolations Detected and !n&estigated Since the Enactment of Section 737=->, SSA, and !mplementation of *elated State La0s #rincipal .indings Cha ter 3" Fi#%i#'+ a#% C$#c-u+i$# State !mplementation of Section 737=->, SSA !mpacts of Section 737=->, SSA, on #rofessional Employer 2rgani:ations Bi4-i$'ra hy i 5 5 6 7 8 A C 53 55 56 56 56 5D 5C 5E 63 63 65 67 68 6E 76 76 7D 7D 7C D6 D7 DD D8 D8 DA DC
A A A A A A A
e#%ix A" S5TA Dum i#' Preve#ti$# Act $) (//. e#%ix B" Le'i+-ati$# e#%ix C" S5TA Dum i#' Detecti$# Sy+tem+ e#%ix D" Trai#i#' e#%ix E" 5I Ex erie#ce Rati#' a#% PEO+ 6 Wh$ i+ the Em -$yer $) Rec$r% e#%ix F" Fi)ty7Three7State Survey e#%ix G" Acr$#ym+
DE 86 8C 43 46 4D AC
E8EC5TI9E S5MMAR:
Pur $+e $) the Stu%y This report is 0ritten in response to a reGuirement of the SUTA Dumping #re&ention Act of 633D =the Act> signed into la0 by #resident Bush on August E, 633D, to curtail a ta@ a&oidance practice -no0n as SUTA dumping.5 The Act amended .ederal unemployment compensation =UC> la0 by adding Section 737=-> to the Social Security Act and reGuired states to amend their UC la0s to prohibit certain ta@ a&oidance schemes by /anuary 5, 6334. States 0ere also reGuired to establish procedures for detecting these schemes. Congress reGuired the Secretary of Labor to conduct a study on the status and appropriateness of state actions to implement the Act, and to submit a report. The data collection for the study consists primarily of information regarding implementation acti&ities bet0een /anuary and September 73, 6334. The information and data presented in the E@ecuti&e Summary and body of this report represent a snapshot in time 0hen most states 0ere still in the implementation process. Accordingly, 0hile e&ery state enacted conforming legislation, the a&ailable data are too limited to conclusi&ely assess the effecti&eness of the Act. ,o0e&er, the data do offer useful information on preliminary trends identified during the implementation process. Bac&'r$u#% UC ta@ation in the United States is based on an e@perience rating system that is designed to set ta@ rates for indi&idual employers liable for the payment of state unemployment ta@es based on the employerBs e@perience 0ith unemployment. ost states use UC benefits paid to an employerBs former employees, 0hich are subseGuently charged to the employerBs UC account, as a factor for determining the employerBs e@perience rate. 2ther states also use contributions paid as an additional factor in determining UC e@perience. Such systems operate li-e an insurance program 0here employers 0ith a higher ris- of creating unemployment pay higher ta@es. SUTA dumping refers to ta@ rate manipulation schemes used by some employers, including those follo0ing recommendations of ad&isors, to a&oid or )dump+ their benefit charges in order to pay lo0er state UC ta@es than their unemployment e@perience 0ould other0ise allo0. SUTA dumping is accomplished by merger, acGuisition, or restructuring schemes that shift 0or-forceHpayroll so that the employer escapes poor unemployment e@perience and a high ta@ rate. !n the short term, these schemes cause a loss of ta@ re&enue for the state. ,o0e&er, o&er a period of years, they increase the )sociali:ed costs+ added into the ta@ rate computation for most state employers to offset the loss of re&enue. Leading up to the passage of the SUTA Dumping #re&ention Act of 633D, the U.S. Department of Labor 0as concerned 0ith a &ariety of ta@ a&oidance schemes that resulted in increased sociali:ed costs. As a result, the Employment and Training Administration =ETA> contracted 0ith the <*A Corporation to conduct a study entitled Employee Leasing: Implications for State
5
SUTA is an acronym for State Unemployment Ta@ Act, 0hich represents a shorthand designation of the set of la0s promulgated by all 87 state unemployment insurance agencies in conformance 0ith .ederal la0.
E@ecuti&e Summary I #age i
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute
Unemployment Insurance Programs. This 5EE4 study, 0hich began as a re&ie0 of the employee leasing industry, concluded that ta@ rate manipulation schemes 0ere also being conducted by some employers in other industries that normally ha&e high employee turno&er and high UC costs. The <*A study 0as follo0ed by a U.S. Department of Labor, 2ffice of !nspector ;eneral, .inal Audit *eport number 37(EC(33A(37(758, 0hich also concluded that SUTA dumping could occur across all industries 0ith a history of high employee turno&er and high UC costs. !n addition, during /une of 6337, the ;eneral Accounting 2ffice presented testimony to the Subcommittees on 2&ersight and ,uman *esources, ,ouse Committee on "ays and eans, and discussed findings regarding the e@tent of SUTA dumping disco&ered, based on its sur&ey of 87 state UC administrators. Sc$ e $) the Stu%y This study e@amines )the implementation of the pro&isions of section 737=-> of the Social Security Act =as added by subsection =a>> to assess the status and appropriateness of state actions to meet the reGuirements of such pro&isions+ =section 6=b> of #ublic La0 53C(6E8>. !t also attempts to analy:e state la0 that pertains to the e@perience rating pro&isions for client companies entering and e@iting employee leasing contracts 0ith #rofessional Employer 2rgani:ations =#E2s>. #E2s are organi:ations that pro&ide client companies 0ith a broad range of human resource ser&ices, such as filing payroll ta@ reports and pro&iding employee fringe benefit pac-ages. The 1ational Association of #rofessional Employer 2rgani:ations currently estimates that 6 to 7 million 0or-ers in the U.S. are co&ered by #E2 contracts =httpFHH000.napeo.orgHpeoindustryHfaG.cfm9C>. "ith respect to status and appropriateness of state actions, all states enacted conforming legislation, and most states ha&e implemented a SUTA dumping detection system =SDDS> to help disco&er potential SUTA dumping acti&ities. ,o0e&er, the SDDSBs of a fe0 states 0ere not fully operational at the time of this study. As noted earlier, 0ith respect to the time frame of this study, states 0ere in the early implementation stage of their SUTA dumping initiati&es, and many did not ha&e a full year of stable, reliable data on cases detected, in&estigations underta-en, or &iolations found. !n fact, 54 states had not yet in&estigated a SUTA dumping case or assessed additional ta@es due. Accordingly, the effecti&eness of the Act on a national scale is difficult to determine. ost state la0s 0ere not effecti&e until /anuary 5, 6334, and the ma$ority of states did not ha&e an operational SDDS until the third Guarter of 6334. The data collection sur&ey 0as designed to accommodate a report to Congress by /uly 58, 633A, and therefore as-ed states to pro&ide data through the third Guarter of 6334. T0enty(four state la0s did not become effecti&e until /anuary 5, 6334, 0hich limited the potential a&ailable data to three Guarters. Additionally, forty percent of the states did not operationali:e their SDDS until after September 73, 6334, further limiting the data a&ailable to e@amine.6 As a result, gi&en the limitations of the data collection in the sur&ey, it is not possible =5> to determine on a national scale if all states are effecti&ely using
6
There 0ere 54 states that did not ha&e a SDDS in operation until after September 73, 6334, as sho0n in Appendi@ C. There 0ere nine states that did not install the SDDS until the third Guarter 6334.
E@ecuti&e Summary I #age ii
their la0s to identify and stop the practice of SUTA dumping? or =6> to assess 0hether or not SUTA dumping penalties le&ied on employers are effecti&e. Thus, it is not yet feasible to determine the current effecti&eness of .ederal and state la0s regarding SUTA dumping. Meth$%$-$'y $) Stu%y The study design for this pro$ect included the follo0ing acti&itiesF 5. Determining 0hat information 0as needed from 0hom? 0hat Guestions needed to be as-ed and 0hat process needed to be used to address the Guestions? and 0hat procedures 0ere reGuired for gathering the data necessary to pro&ide meaningful information on statesB implementation of the Act. This led to the de&elopment of a plan to conduct on( site &isits 0ith a pilot state and si@ additional states and the de&elopment of a Site Visit Guide and a draft sur&ey instrument =informed by the pilot state &isit> to be sent to all 87 state UC agencies, 0hich for the purposes of .ederal program administration includes the District of Columbia, #uerto *ico, and the %irgin !slands. 6. 2btaining input from the U.S. Department of Labor, Employment and Training Administration =ETA> and appro&al from the 2ffice of anagement and Budget for the sur&ey to be sent to the states. The sur&ey 0as sent to all 87 UC agencies and 0as completed and returned by all 87 in /une 633A. 7. Conducting a pilot test of the Site Visit Guide and the sur&ey instrument in the state of Te@as in August 6334, leading to modifications in both. D. Conducting case study site &isits 0ith unemployment officials in si@ statesF California, ichigan, 1e0 ,ampshire, Utah, "ashington, and .lorida bet0een 2ctober and December 6334. During the &isits to Te@as, California, ichigan, and .lorida, meetings 0ith representati&es of the #E2 industry 0ere held, as 0ell. Site &isit reports 0ere prepared and submitted to ETA follo0ing each state &isit. 8. De&eloping a database of the information collected from the sur&ey of 87 states. !nformation from the database 0as utili:ed in preparing the final draft report for this pro$ect. Stu%y Fi#%i#'+ Based on information collected from the site &isits to si@ states and from the sur&ey responses from the 87 states, the study offers the follo0ing preliminary findingsF 5. "hile the states ha&e all enacted conforming legislation to Section 737=->, SSA, there is significant &ariation in the amount of resources being de&oted to the identification of SUTA dumpers. At the time of the study, state UC agencies 0ere at different early stages of implementing organi:ational structures? assigning and training staff? setting policies, rules, and procedures? utili:ing their detection system? and pursuing cases resulting in
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute E@ecuti&e Summary I #age iii
collections or other dispositions. Thirty of the 87 states determined that &iolations of SUTA dumping legislation ha&e occurred in&ol&ing at least one employer. 6. StatesB e@perience in assessing penalties on employers, and ad&isors to employers, has been limited. 7. "hen as-ed to assess the need for any further .ederal legislation, states responded 0ith &arious suggestions for combating ta@ a&oidance schemes in general. Some states mentioned the need to ensure that more attention is de&oted to employers 0ho report payroll in multiple states and 0ho transfer the payroll bet0een UC accounts in different states to manipulate e@perience(rating accounts. Some states indicated a desire for further legislation relating to #E2s. ,o0e&er, there appeared to be little agreement or consensus at this early stage of the implementation process regarding the status of #E2s and state e@perience rating la0s. D. State la0 determines 0hether or not the #E2s in the state are treated as the employer under its UC la0. Thirty(si@ states permit the #E2 to be the employer and report a clientBs payroll under a #E2 account. ,o0e&er, 5A states are no0 reGuiring the #E2 to report the payroll under the client account. This is an increase from the <*A study of the mid(5EE3s, 0hich reported nine states reGuiring the client remain as the employer of record 0hen engaged in a #E2 relationship. 8. States ha&e assigned significant resources to SUTA dumping through the utili:ation of 63C full(time eGui&alent positions to detect, in&estigate, and prosecute SUTA dumping cases. 4. States ha&e trained a total of 7,74D staff members and ha&e in&estigated 5,4D3 SUTA dumping cases through September 73, 6334. A. These in&estigations ha&e found ACA SUTA dumping &iolations by employers and ha&e yielded additional ta@ assessments of J536,6EC,774. 2f this amount, the states ha&e collected J86,D84,CEE. C. "hile only DC SUTA dumping determinations ha&e been appealed nation0ide, 7D of those cases ha&e been upheld at the first le&el of appeals? four cases 0ere re&ersed? and ten cases 0ere still undetermined at the time of this 0riting. The statesB interpretation of la0 0as, therefore, upheld in CE percent of cases determined at the lo0er le&el. E. .ifty(one states responded that they 0ere )satisfied+ or )&ery satisfied+ 0ith the pro&isions of Section 737=->, SSA.
E@ecuti&e Summary I #age i&
C;APTER !" INTROD5CTION AND BACKGRO5ND

#ublic La0 53C(6E8, -no0n as the SUTA Dumping #re&ention Act of 633D =the Act>, 0as signed into la0 on August E, 633D, by #resident ;eorge ". Bush.7 The Act amended .ederal unemployment compensation =UC> la0 by adding Section 737=-> to the Social Security Act =SSA> to curb UC ta@ rate manipulation acti&ities -no0n as SUTA dumping. Some employers ha&e used SUTA dumping methods to pay lo0er state UC ta@es than their earned unemployment e@perience 0ould other0ise allo0. States 0ere reGuired by the Act to e@ecute conforming legislation by /anuary 5, 6334, modifying state UC la0s to meet the minimum standards for detecting and eliminating SUTA dumping acti&ities. The Act further reGuired the Secretary of the U.S. Department of Labor =D2L> to conduct a study of the status and appropriateness of state efforts to implement the Act and the effecti&eness of it. Through a competiti&e solicitation, Coffey Communications, LLC, =Coffey> 0as a0arded a contract to conduct the reGuired study. The Act reGuired the secretary to submit the findings of the study, and to ma-e further recommendations, if any, to impro&e the effecti&eness of the Act by /uly 58, 633A. Due to delays in collecting certain data, the report 0as delayed. This report summari:es the findings from the study. Stu%y A r$ach
!n order to conduct the study reGuired by #ublic La0 53C(6E8, Coffey needed to first assemble a team of senior researchers and sub$ect matter e@perts. !n order to successfully complete the study, members of this team needed -no0ledge of both state and .ederal unemployment insurance la0s, of the e@perience rating system in the U.S., and of methods used by some employers to manipulate the ta@ rate structure. Since a re&ie0 of ho0 the Act impacted the operation of the #rofessional Employer 2rgani:ations industry 0as to be included in the study, specific -no0ledge of that industry 0as reGuired, as 0ell. 2nce gathered, the Coffey team then began the process of de&eloping a pro$ect plan, 0hich included fi&e salient componentsF 5. A determination of 0hat information 0as needed from 0hom, 0hat Guestions needed to be as-ed, and 0hat processes should be used to obtain the ans0ers and gather the data necessary to pro&ide D2L meaningful information on statesB implementation of the Act. This led to the de&elopment of a plan to conduct on(site &isits 0ith a pilot state and si@ additional states and to draft a sur&ey instrument to be sent to all 87 state UC agencies, including the District of Columbia, #uerto *ico, and the %irgin !slands. 6. Appro&al of the de&eloped sur&ey, 0hich 0as reGuested and recei&ed from the 2ffice of anagement and Budget. The sur&ey 0as then sent to all 87 UC agencies and 0as completed and returned by all 87 in /une 633A. 7. A pilot test of the Site Visit Guide and the sur&ey instrument, 0hich 0as conducted in the State of Te@as in August 6334 and 0hich led to ad$ustments in both the Site Visit Guide and the sur&ey instrument.
7
SUTA is an acronym for State Unemployment Ta@ Act, 0hich represents a shorthand designation of the set of la0s promulgated by all 87 state unemployment insurance agencies in conformance 0ith .ederal la0. Chapter 5 I #age 5
D. Case study site &isits to si@ statesF California, ichigan, 1e0 ,ampshire, Utah, "ashington and .lorida. These 0ere conducted bet0een 2ctober and December of 6334. eetings 0ith employers in the #E2 industry 0ere included in the &isits to Te@as, California, ichigan, and .lorida. Site &isit reports 0ere prepared and submitted to the Employment and Training Administration follo0ing each state &isit. 8. The de&elopment of a database for the acGuired information, 0hich 0as completed and from 0hich the final draft report 0as prepared. Bac&'r$u#% The .ederal(state UC program 0as created by the Social Security Act of 5E78 and is designed to pro&ide for partial 0age replacement to indi&iduals 0ho are unemployed due to a lac- of 0or-. Employers generally pay t0o forms of UC ta@es reGuired by la0Ka .ederal Unemployment Ta@ Act =.UTA> ta@ and a State Unemployment Ta@ Act =SUTA> ta@. The .UTA ta@ is a flat ta@ collected by the !nternal *e&enue Ser&ice =!*S>. !t generally pays for .ederal administration and o&ersight of the UC program and the costs of administering the UC and /ob Ser&ice programs? it pays the .ederal share of e@tended benefits? and it builds reser&es to loan money to a state 0hen the stateBs account in the unemployment trust fund is depleted. The SUTA ta@ is collected by states and is used to pay benefits to unemployed 0or-ers. The SUTA ta@ rate is based on an e@perience rated system under 0hich an employer 0ho lays off fe0er 0or-ers 0ill generally pay lo0er unemployment insurance =U!> ta@ than an employer 0ho lays off more 0or-ers. .ederal UC la0 is primarily contained in .UTA and the SSA, and it sets forth certain minimum reGuirements that state UC la0s must include in order for employers in that state to be eligible for a credit against the .ederal ta@. D2L o&ersees conformity and compliance 0ith .ederal la0, sets broad policies for program administration, monitors state performance, and distributes administrati&e funds to the states. Sub$ect to the reGuirements of .ederal la0, state la0 determines benefit and eligibility pro&isions, co&erage pro&isions, the ta@able 0age base, and the e@perience rating system used to set ta@ rates. Experience Rated System of Financing the UC Program UniGue among UC programs in de&eloped countries, the U.S. program utili:es an e@perience rating system to set ta@ rates for indi&idual employers that are liable for the payment of state unemployment ta@es. !n all other countries, a flat ta@ is applied to finance the UC program. Three reasons are generally offered for 0hy an e@perience rating system is usedF 5> it encourages stable employment by creating a disincenti&e to lay off 0or-ers in the form of higher ta@es? 6> it generally places the attribution of costs of UC benefits on the employer responsible for the unemployment? and 7> it creates an incenti&e for employers to participate acti&ely in policing the UC program to protect the accuracy of their e@perience rating. ,o0e&er, there is a disad&antage to an e@perience rating systemF since it is an insurance system, an unscrupulous employer can obtain an unfair ad&antage o&er competitors by manipulating his e@perience history to obtain a more fa&orable rate. The Act 0as designed to reduce the ability of unscrupulous employers to do so.
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Chapter 5 I #age 6
Socialized Costs E@perience rating ta@ pro&isions &ary from state to state. !n all states, ho0e&er, e@perience rated employers 0ith higher UC benefit charges usually pay higher UC ta@es than their counterparts 0ith lo0er benefit charges. E@perience rating, as practiced by the state UC programs, does not mean that e&ery dollar of benefit payouts is assigned to a liable employer. All states limit charges to indi&idual employers by ha&ing a ma@imum UC ta@ rate. The e@cess of benefit charges o&er ta@ payments made by employers ta@ed at the ma@imum state ta@ rate becomes a )sociali:ed charge+ that results in other employers paying higher UC ta@es than their o0n unemployment e@perience 0ould other0ise ha&e reGuired in order to fully finance the system. Sociali:ed charges also occur 0hen employers cease operations and their former employees recei&e UC benefits. Benefits charged to these inacti&e employers are considered to be )ineffecti&e+ because the employer is no longer paying unemployment ta@es for benefits paid. Employers may also be relie&ed of charges for 0hich they are not responsible 0hen those charges arise from employees 0ho ha&e, for e@ample, &oluntarily Guit for health reasons or other non(disGualifying personal reasons under state la0. !n the aggregate, ineffecti&e charges, charges against inacti&e accounts, and non(charged benefits typically account for 73 to D3 percent of total UC benefit payouts. Because a substantial share of total benefits is sociali:ed, i.e., not assigned bac- to the indi&idual employer, the U.S. system of e@perience rating is described as a partial or imperfect e@perience rating system. Employers 0ith higher benefit payouts generally pay higher UC ta@es, but the amount of ta@es paid does not necessarily correlate to the amount of UC paid to their former employees. Tax Av$i%a#ce Activity a#% Preve#tive Le'i+-ati$# "hile the basic UC system has remained predominantly unchanged since its inception, some employers and financial ad&isors ha&e found 0ays to manipulate the state e@perience rating systems to pay lo0er state UC ta@es than their unemployment e@perience 0ould other0ise allo0. The &ariability of ta@ rates across indi&idual employers has generated incenti&es to a&oid some part of UC ta@es through different ta@ manipulation acti&ities. Some of these acti&ities include =but are not limited to> the follo0ingF 5. Employee MisclassificationF Self(employed indi&iduals and independent contractors are not co&ered for UC purposes, and employers may a&oid paying UC ta@ by misclassifying employees as independent contractors. This has been a ma$or issue for both the state UC agencies and the !*S for o&er 73 years, and it continues today. The !*S reported that utili:ation of .orm 53EE !SC =used by employers to indicate that remuneration for ser&ices 0as made to a 0or-er 0ho 0as not in employment> increased by D.C million bet0een the years 5EEE and 6336. !n 6336, the !*S processed AE.7 million 53EE !SC forms.D
Luestionable Employment Ta@ #ractices !nitiati&e, "ashington, DC, September 6A, 6338 Chapter 5 I #age 7
6. Underreporting PayrollF Employers 0ho do not report all of their employees or their 0ages can go undetected for long periods of time. This -ind of underreporting is often detected through the )bloc-ed claim+ in&estigati&e process, 0hen laid(off employees file claims for benefits and find that their 0ages ha&e not been reported to the UC agency. Underreporting of payroll may also be disco&ered through the field audit program, 0hich D2L policy mandates in e&ery state. All state la0s prohibit the underreporting of payroll, although pro&isions for penalties &ary among states. 7. Payrolling or Payroll ParkingF #ayrolling occurs 0hen t0o or more businesses that are totally unrelated agree, for a set fee, to ha&e all 0ages reported under the company 0ith the lo0est unemployment ta@ rate. This acti&ity is illegal in all states because the actual )employer+ of the indi&idual 0or-ers is responsible for the payment of ta@es on their 0ages. D. BufferingF Buffering is a common techniGue used by an employer that is planning to reorgani:e andHor do0nsi:e by forming a subsidiary company and mo&ing =transferring> the 0ages of employees 0ho are to be laid off into the ne0 subsidiary company. 2nce the employees that ha&e been transferred ha&e no 0ages in the base period of the parent company and are laid off, any claims filed 0ould be charged against the subsidiary =recei&ing> account. The parent company then closes the subsidiary account 0ith the state UC agency and the charges become )ineffecti&e+ because the subsidiary account is no longer in business and is no longer paying ta@es. The charges 0ill be )sociali:ed+ and other employers 0ill pay additional ta@es as a result. This practice is illegal only in states that reGuire an employer to ha&e a single account or that reGuire employees engaged in a )unity of enterprise+ to be reported under a single account. 8. Failure to Report SuccessionsF !n this case, an employer closes a business 0ith a high UC ta@ rate and opens a ne0 one that pro&ides the same goods and ser&ices, 0ith substantially the same assets, but fails to report this acti&ity to the UC ta@ing authority. Since the ne0 employer rate is generally less than a high e@perience rate, the employer 0ould pay less UC ta@. any state la0s reGuire a successor 0ho obtains the total business of a predecessor to assume the e@perience of the predecessor, but this acti&ity may a&oid detection. 4. ffiliated Shell !ransactionF An established company 0ith an e@isting UC account number forms a subsidiary company, applies for a UC account number, and then reports one or more employees under the subsidiary account until it has earned a reduced e@perience rate.8 2nce the reduced rate is established, the original company 0ill mo&e large amounts of payroll into the lo0er rated subsidiary account. The employer has engaged in an affiliated shell transaction.
A. Purchased Shell !ransactionF !n a purchased shell transaction, a ne0 company, not pre&iously assigned an account 0ith a state UC agency, purchases a company for the sole purpose of obtaining a reduced e@perience rate.4
8 4
Unemployment !nsurance #rogram Letter 1o. 7D(36 =re&ised> December 75, 6336 Unemployment !nsurance #rogram Letter 1o. 7D(36 =re&ised> December 75, 6336 Chapter 5 I #age D
Before enactment of the SUTA dumping la0, almost all states prohibited employer fraud practices such as intentional misclassification of employees, underreporting of payroll, payroll par-ing, and the failure to report successions. Some states la0s prohibited the practice of )buffering+ by reGuiring that an employer must report all payroll under a single account number or that reGuire employees engaged in a )unity of enterprise+ to be reported under a single account. The Act 0as intended to prohibit the type of manipulation acti&ity found in affiliated and purchased shell transactions. Section 303(k) of the Social Security Act "egislati#e Re#ie$% Section &'&(k)* SS +Minimum Re,uirements Section 737=->, SSA, reGuired states to amend their UC la0s in se&eral respects.A State la0s needed to be amended to mandate the transfer of unemployment e@perience in one circumstance =mandatory transfer pro&ision>, to deny the transfer of e@perience in another =prohibited transfer pro&ision>, to pro&ide ci&il and criminal penalties for persons 0ho engage in these SUTA dumping practices, and to establish procedures for identifying the transfer or acGuisition of a business. All states had to enact the reGuired legislation by /anuary 5, 6334, to be in conformity 0ith .ederal UC la0. A brief discussion of the minimum reGuirements follo0s Mandatory !ransfer of UC Experience The SUTA Dumping #re&ention Act of 633D 0as designed to address the final t0o types of ta@ rate manipulation schemes mentioned in the list abo&eKthe affiliated shell transaction and the purchased shell transaction.C The Act reGuired state UC la0s to mandate the transfer of e@perience 0hen there is a transfer of trade or business bet0een entities 0ith substantially common o0nership, management, or control.E The mandatory transfer pro&ision prohibits an employer from engaging in the )affiliated shell transaction+ 0here an employer escapes poor e@perience =and high e@perience rates> by setting up a shell company and then transferring some or all of its 0or-force =and the accompanying payroll> to the shell company after the shell has earned a lo0 e@perience rate. As sho0n in Appendi@ B(5, all states amended their UC la0s to pro&ide for a mandatory transfer of e@perience. Some states e@ceeded the minimum .ederal reGuirement by mandating the transfer of e@perience 0hene&er there 0as a transfer of trade or business bet0een entities 0ith )any+ common o0nership, management, or control. Prohi-ited !ransfer of UC Experience
A
C E
D2L issued guidance for the states in Unemployment !nsurance #rogram Letter =U!#L> 73(3D on August 57, 633D, regarding the legislati&e reGuirements of Section 737=->, SSA, including a description of the Act, a Guestion and ans0er section, proposed draft language to achie&e conformity, the te@t of the Act, and a chec-list for re&ie0. D2L issued U!#L 73(3D, Change 5, on 2ctober 57, 633D, to pro&ide additional guidance #L 53C(6E8 is Appendi@ A Section 737=->=5>=A>, SSA. Chapter 5 I #age 8
The Act reGuired states to amend their UC la0 to prohibit the transfer of unemployment e@perience 0hen a person 0ho is not an employer under state UC la0 acGuires an employer solely or primarily to obtain a lo0er rate of contributions.53 The prohibited transfer pro&ision prohibits the )purchased shell transaction+ 0hich in&ol&es an entity commencing a business by purchasing a lo0 UC ta@ rated employer, and then transforming the business by operating an acti&ity that normally 0ould ha&e higher UC ta@ costs. Appendi@ B(5 sho0s that all states enacted conforming legislation and pro&ides the state la0 citation that implements this reGuirement. uthority for Future Federal Regulations To ensure that if additional types of ta@ rate manipulation schemes, not contemplated by this Act, occur in the future, the Secretary of Labor has been pro&ided 0ith the authority to 0rite and issue .ederal regulations to specifically address the acti&ity. This authority is contained in Section 737=->=5>=C>, SSA. Penalty Pro#ision The Act reGuires that state la0 pro&ide meaningful ci&il and criminal penalties for persons 0ho )-no0ingly+ &iolate, attempt to &iolate, or ad&ise others to &iolate the transfer of e@perience pro&isions that implement the mandatory and prohibited transfer pro&isions of Section 737=->, SSA.55 The Act defined )-no0ingly+ to mean that the person committing the &iolation is acting 0ith )actual -no0ledge of or acting 0ith deliberate ignorance of or rec-less disregard for the prohibition in&ol&ed.+ Appendi@ B(6 sho0s that all states enacted the reGuired ci&il and criminal penalties for persons 0ho &iolate, attempt to &iolate, or ad&ise another to &iolate the transfer of e@perience pro&isions? it also pro&ides a reference to the specific pro&ision of state la0 implementing the reGuirement. During the course of this study, se&eral states indicated that enforcing the penalty pro&isions of this la0 has pro&en to be &ery difficult. "hile states do not ha&e to pro&e )intent+ by the employer to enforce the )mandatory+ transfer of e@perience pro&ision, they do ha&e to pro&e that the employer or ad&isor )-no0ingly+ acted to &iolate the la0. Because employers often allege good business reasons for reorgani:ing, reasons that are not associated 0ith unemployment insurance, it is difficult to pro&e they acted 0ith )rec-less disregard.+ ConseGuently, many cases of SUTA dumping ha&e been detected, in&estigated, and corrected? but )meaningful+ penalties ha&e not been in&o-ed. 2f the 87 state UC programs sur&eyed, only nine states cited an instance in 0hich an ad&isor 0as penali:ed for illegal acti&ity. E))ective#e++ $) the Le'i+-ati$# Sur&ey responses recei&ed from 85 of the 87 State "or-force Agencies indicated they 0ere )satisfied+ or )&ery satisfied+ 0ith the pro&isions of the SUTA Dumping #re&ention Act of
53 55
Section 737=->=5>=B>, SSA. Section 737=->=5>=D>, SSA. Chapter 5 I #age 4
633D. any states also responded that the Act deterred SUTA dumping acti&ity and impro&ed the integrity of the program. 2nly one state, Ari:ona, indicated dissatisfaction 0ith the Act. Ari:ona stated in the sur&ey that ). . . lac- of sufficient administrati&e funding resources for implementing SDDS acti&ities pre&ents it from ma-ing an informed e&aluation of the effecti&eness of the .ederal legislation. . . .+ They also indicated that )AdeGuate administrati&e funding to effecti&ely operate the U! Ta@ function as 0ell as to implement the SUTA dumping la0s is the most important action Congress could ta-e. Any additional unfunded .ederal mandates 0ould be counterproducti&e, as Ari:ona 0ould still lac- the resources necessary to implement them.+ 2ne other state had no opinion on the effecti&eness of the la0. .igure 5.5 pro&ides a graphical &ie0 of the satisfaction of the states 0ith the effecti&eness of the Act.
Figure 1.1: Effec i!e"e## $f Sec i$" 303(%) $f &e S$ci'( Securi ) Ac
1 22
29
Very Satisfied
Satisfied
Not Satisfied
No Opinion
State UC agencies responded that the Act is beneficial in se&eral respects. .orty(fi&e states responded that the en&ironment for detection, in&estigation, and pre&ention of SUTA dumping and other ta@ manipulation acti&ities has changed substantially since the la0 became effecti&e. !n addition, DD states responded positi&ely that SUTA dumping detection and enforcement acti&ity is a producti&e and 0orth0hile in&estment of resources. States reported a ne0 a0areness from both state UC agency employees and state employers regarding ta@ rate manipulation acti&ity and 0hat it means. A sampling of sur&ey comments on these issues is sho0n belo0F Since the passage of the Act, e ha!e had significant prospecti!e reporting and compliance" #he Act raised a areness nationally, thereby ma$ing it easier to deter subse%uent acti!ities" Since our detection efforts began in late &''(, e ha!e billed appro)imately
Chapter 5 I #age A
*+"( million in additional U, contributions, interest and penalties, hich far e)ceed our e)penditures to date" -& #he automated process.systems allo s ider disco!ery of fraud" A areness by employers of the detection system forces them to be more cautious" SU#A dumping in the form of e)perience rating manipulation as e $no it no longer e)ists in our state" In &''/, e identified &0 employer accounts 1there ere many more2 that accounted for *30 million in lost re!enue to the trust fund that year" -( In terms of a replenishment ta) rate impact, 4ust this small group of employers caused all employers5 ta) rates to increase by '"- percent 1one tenth of one percent or *6"'' for e!ery employee earning o!er *6,'''2" 7e estimate that in total, SU#A dumping during &''/ contributed to appro)imately '"& percent of the '"83 percent replenishment ta) rate" It as not uncommon to see a series of commonly9o ned companies ith names li$e A:, I, Inc", A:, II, Inc", A:, III, Inc", etc", ith the payroll being transferred from one to the others each year ; e had no mandatory transfer on partials 1prior to passage of the Act2<, lea!ing all the charges behind hile mo!ing the payroll into minimally rated entities" #his as a common practice in this state and others as ell" Immediately after the =ederal la became effecti!e, e obser!ed, anecdotally, an immediate decline in the number of successor accounts ith common o nership, e!en though our state SU#A dumping legislation as not yet effecti!e" #oday, ith both =ederal and State SU#A dumping la s in place, the number of successions from commonly9o ned employers is ;at a< minimum, and primarily for other legitimate business reasons"
State+< Rec$mme#%ati$#+ )$r Ne= Fe%era- Le'i+-ati$# Section 737=->, SSA, reGuired the Secretary of Labor to conduct this study and to ma-e a recommendation to Congress as to 0hether or not further legislation is reGuired to impro&e the effecti&eness of the Act. !n order to assist the Secretary in this endea&or, the sur&ey as-ed states 0hether additional .ederal legislation should be enacted to pre&ent SUTA dumping and similar schemes. .igure 5.6 sho0s that 66 states =D7 percent> responded that additional .ederal legislation is needed to further assist 0ith deterring ta@ a&oidance schemes.
56
57
This amount includes both pre( Section 737=->, SSA, and post Section 737=->, SSA, acti&ity. This amount includes legal acti&ity prior to the passage of section 737=-> that 0as not legal after the state la0 0as passed. Chapter 5 I #age C
Figure 1.*: Nee+ f$r A++i i$"'( Fe+er'( Legi#(' i$"

2%
Need for Additional Federal Law 43% No Need for Additional Federal Law No Opinion 55%
,o0e&er, 0hen these responses 0ere analy:ed, most seemed directed to general ta@ a&oidance issues and not directly to impro&ements in the Act. .urther, it should be noted that some of the state recommendations for change or additional legislation could possibly be handled through amendments to state la0s, interstate agreements, andHor D2L directi&esHregulations. They are summari:ed belo0 because they 0ere specifically mentioned by state UC programsF 5. assachusetts and 2regon responded that more prescripti&e language should be pro&ided at the .ederal le&el defining 0hat constitutes )-no0ing+ &iolations and )misrepresentation+ in order to trigger penalties. The current la0 has not demonstrated success in securing for states the ability to pro&e )intent+ in order to impose penalties ontana, 2hio, #uerto *ico, Utah, and "ashington responded that consideration should be gi&en to reGuiring the disclosure of information bet0een and among states 0hen employers ha&e accounts in neighboring states, thus helping to eliminate )state line $umping.+
6.
7. Thirteen states, in response to the sur&ey, indicated that .ederal clarification is needed regarding the role of #E2s and their status. Si@ states = ontana, 1orth Da-ota, 1e0 'or-, South Carolina, Tennessee, and %irginia> e@pressed the opinion that .ederal legislation is needed in this area to ma-e the handling of #E2s more uniform. 2ne state, Colorado, belie&es that the #E2 should be the reporting entity and all ta@ reports should be submitted under the #E2 account number. Si@ states =!daho, !o0a, ichigan, innesota, 2hio, and issouri> belie&e that the client company should be considered the employer and all ta@ reports should be submitted under the client account number. ichigan and 1e0 'or- both stated that unemployment e@perience should be transferred bet0een a client company and a #E2 0hen entering and e@iting a contractual relationship. D. 2ne state, California, indicated that .ederal legislation 0as needed to reGuire that monetary penalties, deri&ed from SUTA dumping cases, be prohibited from being added to the employerBs reser&e account balance in those states 0ith )reser&e ratio+ e@perience
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Chapter 5 I #age E
rating systems. "ithout such a prohibition, penalties can be con&erted into a contribution to the employerBs reser&e account, thus negating ha&ing penali:ed the employer. The S5TA Dum i#' Detecti$# Sy+tem Congress and D2L recogni:ed that enacting legislation to pre&ent SUTA dumping 0ould not resol&e the problem unless it also addressed the statesB ability to detect ta@ a&oidance acti&ity. Therefore, the Act reGuired state la0 to specify that the state 0ould establish procedures to identify the transfer or acGuisition of a business for the purpose of detecting SUTA dumping. To assist the state UC agencies, ETA contracted 0ith the state of 1orth CarolinaBs Employment Security Commission to de&elop, pilot test, and distribute an automated system of detection -no0n as the 1orth Carolina(de&eloped SUTA Dumping Detection System =1C SDDS>. The 1C SDDS is a #C(based, stand(alone system that uses data from a series of e@tract files that are do0nloaded from a stateBs automated employer and 0age records files. Simply put, the system searches Guarterly employee 0age records and annual UC ta@ account information to detect mo&ement of employees from one employer account to another. The system displays the employer account from 0hich employees 0ere transferred, the employer account=s> they transferred into, the Guarter they mo&ed, the number of employees in&ol&ed in the mo&e, the amount of 0ages, the age of the accounts, and 0hether or not a documented succession occurred. The display also sho0s the employer ta@ rates, ta@able 0ages, ta@es paid, and, in some states, &oluntary contributions that may ha&e been paid =a procedure to achie&e a reduced ta@ rate in a reser&e ratio state>. The DD states that use the 1C SDDS can &ie0 ta@ information for a particular employer account they suspect of SUTA dumping, or they can find any number of accounts that meet certain criteria as defined by filter options a&ailable in the system. The filter options a&ailable include the follo0ingF 5> employer si:e by number of employees? 6> the number of employees transferred? 7> percent change in number of employees? D> percent change in 0ages? 8> ma@imum age of the employer =in Guarters> that the employees 0ere transferred into? 4> documented successors? A> type of o0nership? C> &oluntary contributions used to lo0er ta@ rates? E> industry codes? 53> change in ta@ rates for both the e@it account and the entry account? 55> employer name =including a string search, e.g., /oe Bloc- 5, /oe Bloc- 6, /oe Bloc- 7, etc.>? 56> employer address? and 57> employer telephone number. These screens and searches are designed to help UC staff determine 0hether further in&estigation of an identified employer is recommended for SUTA dumping detection purposes. "hile the system 0as designed in response to SUTA dumping, as defined in the SUTA Dumping #re&ention Act of 633D, it has pro&en to be of great &alue in disco&ering the other types of ta@ a&oidance acti&ity mentioned pre&iously, such as payrolling =or payroll par-ing>, buffering, and failure to report successions. !t may also assist states in learning of ne0 employee leasing arrangements by detecting the mo&ement of a client companyBs employees into a #E2.
Chapter 5 I #age 53
Professional Employer .rganizations 2ne 0ay employers ha&e responded to increases in costs of doing business =e.g., health insurance, 0or-ersB compensation, ta@es, etc.> is through the use of both temporary help agencies and #E2s pro&iding staff through an employee leasing arrangement. ,o0 SUTA dumping legislation impacted the #E2 industry is included in this study and is discussed in detail later in Chapter D. Literature Pr$vi%i#' Im etu+ )$r I#tere+t i# S5TA Dum i#' A significant body of rele&ant literature predates the current attention to SUTA dumping. States and ETA ha&e studied alternati&e employer(employee 0or-ing arrangements, such as employee leasing, at least since the mid(5EE3s. .or e@ample, in the mid(5EE3s, ETA contracted 0ith <*A Corporation to conduct a study entitled Employee Leasing: Implications for State Unemployment Insurance Programs =httpFHH0dr.doleta.go&Ho0sdrrHEA(5HEA(5.pdf>. <*A conducted case studies in .lorida, aryland, 2-lahoma, and Te@as. !n /une 6337, the ;eneral Accounting 2ffice =;A2> presented testimony to the Subcommittees on 2&ersight and ,uman *esources, ,ouse Committee on "ays and eans, and discussed findings of the e@tent of SUTA dumping based on its sur&ey of state UC administrators in the 87 states and four consulting firms =httpFHH000.0ashington0atchdog.orgHdocumentsHgaoH37H;A2(37(C5ET.html>. The ;A2 also completed a study on employee leasing in 5EEC. California, .lorida, ichigan, Te@as, and 1orth Carolina ha&e been among the states acti&ely in&ol&ed 0ith employee leasing acti&ities of the #E2 industry. Some of the follo0ing studies informed the need for legislati&e remediation to pre&ent SUTA dumping. A study conducted by the Department of Labor, 2ffice of !nspector ;eneral, entitled Effect of Employee Leasing on the State of Georgia Unemployment Insurance #rust =und 1=inal Audit >eport '(96+9''39'(9(-02, concluded that ta@ rate manipulation schemes, such as those -no0n as SUTA dumping, ha&e resulted in lost UC ta@ re&enues. This translated into sociali:ed costs that are paid by other employers, since they are reGuired to pay additional UC ta@es in order to offset this loss of unemployment ta@ re&enue. The audit made a clear and &ery important point that such schemes could occur not only in the employee leasing industry, but also in any industry that normally has high unemployment costs. These, along 0ith other studies and concerned employers and employer organi:ations, led to a conclusion that UC ta@ rate manipulation 0as a &ery serious issue.
Chapter 5 I #age 55
C;APTER (" STATE AGENC: ENFORCEMENT*STR5CT5RE AND RESO5RCES

Ge#era- O4+ervati$#+ States established &arious structures to allocate and direct resources for SUTA dumping pre&ention, detection, and in&estigation. ost states chose a centrali:ed organi:ational design 0hereby decisions are made and 0or- performed at the central office le&el. ;enerally, states use e@isting budgets for UC ta@ operations to fund enforcement acti&ities. A limited number of states added resources to launch the SUTA dumping compliance effort. 2&erall, states e@pended significant resources to train ta@ personnel in the reGuirements of the la0 and in using detection tools to identify transfers and acGuisitions in order to detect SUTA dumping. State E#)$rceme#t Structure .rganizational Structure .ield &isits by the Coffey Communications team to se&en states pro&ided detailed information on each stateBs SUTA dumping detection capability, the scope of effort being e@pended, and the location of the program leadership and in&estigations staff in the organi:ation. As stated, central office teams led most of the SUTA dumping enforcement acti&ities. Table 6.5 sho0s the organi:ational element responsible for the o&erall effort as 0ell as =a> the unit responsible for detection and selection of cases to pursue and =b> the unit or indi&iduals responsible for in&estigating cases opened.
T',(e *.1: -e#.$"#i,i(i ) f$r SUTA /u0.i"g E"f$rce0e" Ac i!i ie# (*001) -e#.$"#i,i(i ) f$r /e ec i$" -e#.$"#i,i(i ) f$r Org'"i2' i$" '"+ Se(ec i$" $f C'#e# I"!e# ig' i$"# Florida Department of e!en"e #omplian$e S"pport %nit A$$o"nt &ana'ement %nit (Stat"s) %ta* %nemployment +ns"ran$e S%-A D"mpin' .nfor$ement A$$o"nt ./aminers A'en$y (%+A), Field A"dit Se$tion %nit New 0amps*ire Department of #ontri2"tions #*ief -a/ %nit S"per!isor .mployment Se$"rity, %# 1"rea" -a/ %nit S"per!isor 3as*in'ton State .mployment -a/ +n!esti'ations %nit -a/ +n!esti'ations %nit Se$"rity Di!ision (.SD), %+ -a/ #alifornia .mployment %+ ate &anip"lation -eam %+ ate &anip"lation -eam De!elopment Department (.DD) (ma4ority)5 Field A"ditors -a/ 1ran$*, Field A"dit and (some) #omplian$e Di!ision &i$*i'an %nemployment S%-A D"mpin' Dete$tion %nit S%-A A"ditors +ns"ran$e A'en$y (%+A), -a/ and .mployer #omplian$e Di!ision -e/as 3or6for$e #ommission Stat"s Se$tion Stat"s Se$tion (-3#), %nemployment +ns"ran$e -a/ Di!ision
Program Management During its site &isits, the Coffey team e@amined the operation and management of SUTA enforcement units in state UC agencies. T0o of these states are discussed belo0.
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Chapter 6 I #age 56
ichigan has enthusiastically pursued SUTA dumping. "hen ichigan established a SUTA detection unit 0ithin the Unemployment !nsurance Agency =U!A>, it began in&estigations on e@perience rating &iolations that occurred prior to /uly 5, 6338. The agency established a team that is 0ell organi:ed, trained, and directed to pursue &iolations of Section 737=->, SSA, and ichigan(specific statutory reGuirements.5D The SUTA dumping detection unit identifies, trac-s, in&estigates, and resol&es cases in&ol&ing &iolations of its transfer of e@perience pro&isions on a 0ee-ly basis. The SUTA unit has a full(time manager, 0ho has direct access on a 0ee-ly basis to -ey policy ma-ers and e@ecuti&es 0ho direct all U!A acti&ities. !n addition, ichiganBs 2ffice of the Attorney ;eneral participates in the teamBs 0ee-ly meeting. ).ront line+ auditors present their cases to the e@ecuti&e re&ie0 group on )SUTA ondays.+ Cases reGuiring action by the auditors, the pursuit of critical documents, assistance from legal personnel, ad&ice from the 2ffice of the Attorney ;eneral, or analysis by rate setting e@perts, are carefully monitored to assure timely completion. California is another state that effecti&ely manages its SUTA dumping cases. !t estimated an annual loss of J533 million to its account in the UC trust fund from SUTA dumping. The team operates under a #ro$ect Charter for the U! *ate anipulation Team drafted on August 8, 633D. The team consists of a pro$ect manager and eight staff members 0ho de&eloped methods for detecting SUTA dumping? de&eloped mar-eting and outreach materials? pro&ided training for other Employment De&elopment Department staff? re&ie0ed the current la0? 0or-ed 0ith other units to impro&e the employer registration process? and completed in&estigations on 83 cases during 6338. California continues to operate in the post(Section 737=->, SSA, en&ironment as it did prior to its passage.58 During the 1o&ember 6334 site &isit, the U! *ate anipulation Team had about 83 acti&e cases. #resentations regarding rate manipulation schemes are coordinated by the team. Changes to the ne0 employer registration process ma-e it more difficult for manipulators to obtain additional account numbers. The Contribution *ate ;roup coordinates 0ith the team to identify inappropriate reGuests for reser&e account transfers? the group helps to recalculate rates after disco&ery of a &iolation. Employers found to be manipulating rates 0ere monitored for prospecti&e reporting problems.
5D
58
ichigan la0 reGuires that an employer ha&e only one UC ta@ account. "hen ichigan disco&ers an employer 0ith more than one account, it collapses the accounts into a single account and assigns a rate based upon a blend of e@perience. !n this regard, ichiganBs approach is similar to an )any+ commonality standard for mandatory transfers of e@perience under Section 737=->, SSA Li-e ichigan, California has used other pro&isions of its UC la0 to enforce la0s that pre&ent SUTA dumping. California la0 reGuires the transfer of e@perience 0hen payroll transfers bet0een entities 0ith a )unity of enterprise.+ This is similar to the mandatory transfer of e@perience reGuired under Section 737=->, SSA. Also, in determining penalties under its la0, California assesses 0hether or not the failure to properly report payroll is an act of fraud by the employer. Chapter 6 I #age 57
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute
E#ol#ing Structure Se&eral states e&ol&ed their SUTA dumping enforcement organi:ational structure after initial enforcement acti&ities 0ere under0ay. Some states prefer a decentrali:ed approach, such as those found in Tennessee and !o0a.54, 5A ,o0e&er, most states responding to the sur&ey prefer a centrali:ed approach. Some states ha&e e@perimented 0ith both a decentrali:ed and centrali:ed approach as their units e&ol&ed.5C 2&erall, the pattern in most states reflects a general belief by management that centrali:ed control o&er SUTA dumping detection acti&ities is most appropriate during the initial implementation of these ne0 state and .ederal la0s. State Sta))i#' a#% Re+$urce I++ue+ Staffing Staff de&oted to pre&ention, detection, and in&estigation of SUTA dumping &aries significantly among the 87 UC programs, primarily differing in direct proportion to the si:e of the state. Some larger states ha&e allocated substantial resources to this effort.5E edium(si:ed states ha&e employed fe0er personnel.63 Smaller states usually employ $ust one or t0o .TEBs for their
54
5A
5C
5E
63
Tennessee has =5> placed the fact(finding and determination responsibility in the hands of the field auditors? =6> pro&ided a series of procedures to be follo0ed for each case referred? and =7> established criteria an auditor can use to determine 0hether or not a transfer of a business 0as made for the sole purpose of obtaining a lo0er rate of premiums =i.e., ta@ contributions>. 2nce a case has been selected during the SDDS search, the auditor performs a preliminary in&estigation of the employerBs account. Based on these results, a full in&estigation may be ordered and management then assigns it to a field in&estigator. The manager of Employer Accounts re&ie0s and appro&es the report and decision issued by the auditor. The auditor then issues a decision letter. Completion of cases may ta-e a year, depending on the comple@ity of issues and the cooperation of the employer in&ol&ed. !n !o0a, all applications to establish accounts are in&estigated by field auditors. #art of the in&estigation is to determine if there is commonality of o0nership, management, or control? a decision is issued accordingly. Staff has been trained in ho0 to document commonality bet0een a predecessor and a successor in a change in o0nership, and the results are presented in a Synopsis of !n&estigation. .or e@ample, UtahBs enforcement unit 0as initially housed in its field audit group, 0as then mo&ed to compliance specialists in Employer Accounts in the central office, but returned to field audit by the end of 6334. !n California, the U! *ate anipulation Team utili:ed the regular field audit group to in&estigate some potential cases but found that approach to be less effecti&e than centrali:ed in&estigations by staff 0ith e@perience and special training in in&estigating and documenting rate manipulation schemes. ichiganBs SUTA Dumping Detection Unit consists of se&en full(time staff 0ith e@pertise in liability analysis and ta@ financial reporting and eight SUTA auditors 0ho 0ere recently hired and trained to conduct SUTA dumping in&estigations. !n California, initially nine staff members 0ere assigned to the UC *ate anipulation Team. !n ay 633A, the team 0or-ing on SUTA dumping consisted of 54.6 .TEs, including 56.6 0ho 0ere added as a result of a special budget reGuest. !n "ashington, the U! Ta@ and "age 2perations Di&ision supports a Ta@ !n&estigations Unit that analy:es and in&estigates both the )underground economy+ and SUTA dumping &iolations. !nitially, the pilot SUTA dumping in&estigations effort in&ol&ed only one full(time in&estigator and resulted in assessments of o&er J5 million. .our underground economy in&estigators and three SUTA dumping in&estigators ha&e been 0or-ing under the super&ision of a manager since /une 6334. Additional information technology and legal positions are being contemplated. The Ta@ !n&estigations Unit anager assigns priorities to all referrals and holds in&estigators accountable for cases assigned. About 568 ne0 accounts are assigned to in&estigators each Guarter. 1orth Carolina reported that a fi&e(person SUTA team is supported by a half(time staffer from their legal unit. 2hio is de&oting the eGui&alent of 58 .TEs to SUTA dumping acti&ities. States such as assachusetts that did not pre&iously reGuire transfers of the e@perience rate in both partial and total successions are e@pending significant resources on ne0 business transfer units. Chapter 6 I #age 5D
SUTA dumping enforcement unit.65 Some states do not differentiate SUTA dumping pre&ention, detection, and in&estigation efforts from routine ta@ in&estigations. 1ation0ide, the total effort de&oted to implementing Section 737=->, SSA, is currently estimated by the states at 63C.D staff years, eGui&alent to about J57 million in annual personnel costs. States are committing, on a&erage, the eGui&alent of 7.E7 full(time staff to enforcing the la0. Some are dedicating far more. To accomplish this, states ha&e primarily reallocated e@isting UC staff to implement Section 737=->, SSA, and related state legislation. 2nly 5D states reported that net additional staff 0as added to implement SUTA dumping acti&ities, totaling 8A.D .TEs. Staff members 0or-ing primarily in registration, liability determinations, audit, and ta@ in&estigations acti&ities are focused on this 0or-, although not necessarily full(time. The .TEs brea-do0n of staff dedicated by organi:ational units is sho0n in Table 6.6.
T',(e *.*: S ' e S 'ff /e+ic' e+ $ /e ec i$", I"!e# ig' i$" '"+ Pre!e" i$" $f SUTA /u0.i"g (*003) (43 S ' e# -e.$r i"g) Nu0,er $f Org'"i2' i$"'( U"i Fu(( Ti0e E5ui!'(e" # Lia2ility and e'istration 75815 +n!esti'ation and A"dit 92813 .nfor$ement:#olle$tion 1;817 Le'al 7849 +nformation -e$*nolo'y 12837 +nte'rity %nit ;81< Ot*er 98<< T$ '( FTE# *06.70
StatesB responses to the sur&ey reflect a perception that additional resources are needed to combat SUTA dumping. .orty(nine states responded that )financialHstaffing+ issues are a barrier to enforcing their ne0 SUTA dumping statute, and D5 states identified it as the )greatest barrier to enforcement+ encountered during the initial implementation period. 1ineteen states identified difficulties in gaining access to information technology resources as the second most pre&alent barrier to enforcement. E&idence of competition for resources 0as 0idely reported by states. Some states indicated the need to restrict re&ie0s of transfers of payroll because of staffing issues.66 2ther states indicated that in&estigations could not be completed because of staffing issues.67 At least t0o states
65
66
67
Dela0are, !daho, and *hode !sland ha&e each de&oted the eGui&alent of one to t0o .TEs to detect, in&estigate, and pre&ent SUTA dumping. 1e0 ,ampshire relies primarily on the analytical e@pertise and in&estigatory s-ills of the chief of contributions and the super&isor of the status unit. The lead staffer is also responsible for other areas, e.g., independent contractors and #E2 accounts. ,o0e&er, e&en a large state may not employ a large number of personnel. 1e0 /ersey reported de&oting less than one .TE to the SUTA dumping implementation effort. 1e0 'or- reported that the selection criteria for re&ie0ing transfer of payroll in the SDDS system had to be ad$usted to accommodate a 0or-able caseload for e@isting staff in its .raud Unit. 1e&adaBs ne0 Employer *ate Unit reported an inability to perform the research and in&estigation necessary to )search out+ and monitor rate manipulation acti&ities 0hile also implementing mandatory transfer reGuirements for the first time. Chapter 6 I #age 58
indicated that implementation and use of the SUTA Dumping Detection System 0as delayed because of staffing concerns.6D .igure 6.6 portrays the number of .TEs de&oted to in&estigating SUTA dumping acti&ity.
6D
"isconsin reported that, due to position reductions and other priorities, the formal procedures de&eloped to follo0 up on Gueries using the SDDS detection soft0are ha&e not yet been implemented. Ari:ona reported that the state lac-s the resources necessary for implementing SDDS acti&ities. Chapter 6 I #age 54
Figure *.*: S ' e FTE# 8ei"g U i(i2e+ $" SUTA /u0.i"g Ac i!i )
&i$*i'an #alifornia &assa$*"setts O*io 3as*in'ton &isso"ri +llinois @ennsyl!ania 3is$onsin =ansas New 0amps*ire Ne!ada New Bor6 Nort* #arolina Ore'on +owa +ndiana #olorado Ala2ama -e/as New &e/i$o Aeor'ia Nort* Da6ota &aine Vermont &ississippi &innesota Delaware #onne$ti$"t Ar6ansas +da*o 3yomin' Lo"isiana O6la*oma %ta* 3est Vir'inia Vir'in +slands So"t* Da6ota *ode +sland @"erto i$o &aryland 0awaii Alas6a Florida So"t* #arolina New ?ersey &ontana Ne2ras6a Vir'inia -ennessee Ari>ona =ent"$6y D#
<
1<
15
2<
25
Nu0,er $f FTE
Chapter 6 I #age 5A
Sta)) Trai#i#' !ypes of !raining States allocated significant resources to train personnel in the tools pro&ided to assist in the implementation of Section 737=->, SSA. All but one state reported in&ol&ing staff in SUTA dumping detection and in&estigation training during 6338I34. Training for state staff using the SDDS de&eloped by 1orth Carolina occurred at the 1ational Ta@ Conference and at three conferences sponsored by ETA. At all four e&ents, e@perts from 1orth Carolina e@plained the selection options made possible by the soft0are and sho0ed ho0 different filters could be utili:ed 0hen trac-ing mo&ements of employer 0or-forces to detect Guarterly reporting beha&ior reGuiring further in&estigation. ost state efforts 0ent beyond simply training a fe0 staff members in ne0 automated detection tools. Some states made significant efforts to train field auditors, collection staff, and other central office personnel in SUTA dumping.68 Some state training has occurred beyond ta@ units to reach all members of the UC program.64 /um-er of Personnel !rained The training of staff in SUTA dumping pre&ention, detection, and in&estigation has primarily focused on employer liability and audit personnel. The number of states conducting training along 0ith the number of staff trained is summari:ed in Table 6.7.
T',(e *.3: S 'ff Tr'i"i"g C$0.(e e+ '# P'r $f I"i i'( I0.(e0e" ' i$" (43 S ' e# -e.$r i"g) S ' e# C$"+uc i"g Nu0,er $f U"i Tr'i"i"g f$r U"i S 'ff Tr'i"e+ Lia2ility 44 959 A"dit 39 1,299 #olle$tion 23 327 Le'al 17 53 Appeals 1< ;; %+ +nte'rity 9 59 Ot*erC 2; ;14 T$ '( 3,317 C +n$l"din' all 3<4 staff trained in #alifornia
68
64
!n ichigan, U!A staff members assigned to conduct SUTA in&estigations and regular field auditors 0ho assist in these matters ha&e been trained in the ne0 la0, SUTA dumping issues, and the agencyBs reGuirements for determining that a SUTA dumping &iolation has occurred. This issue 0as a featured part of the state0ide auditorsB conference held in September 6334. !n "ashington, the stateBs Employment Security Di&ision =ESD> trained o&er 533 auditorsHcollectors in ten district offices. ESD de&eloped an online training module that is designed for auditors from the three state agencies in&ol&ed in employer compliance acti&ities. !n addition, D5 personnel in the central office ha&e been trained in SUTA dumping detection and enforcement issues !n Te@as, status unit managers trained o&er D33 Te@as "or-force Commission =T"C> staff in the meaning and potential impact of the ne0 la0. !n California, appro@imately 43 presentations ha&e been made to internal and e@ternal groups by members of the U! *ate anipulation Team. An informational fact sheet 0as de&eloped and a SUTA dumping 0ebsite 0as constructed Chapter 6 I #age 5C
.e0er than half the states conducted training for collection personnel, and only 5A reported training legal staff. 2nly ten states conducted training for appeals personnel. !ime 0e#oted to !raining !nitial efforts on the part of states to implement training reGuired them to ma-e a substantial in&estment in sharing -no0ledge and de&eloping s-ills. Some large states, such as #ennsyl&ania, ha&e in&ested more than 5,C33 hours in staff training. 2hio had si@ staff trained in the use of the 1orth Carolina SDDS soft0are and pro&ided t0o days of training to 47 auditors. assachusetts reported o&er 5,D33 hours and California reported 5,34D hours spent training 73D staff. Tennessee and issouri each in&ested more than 5,633 hours in staff training. dditional !raining /eeds .orty(four states reported a continuing need for staff training, most freGuently reGuesting four topics in particularF methods for using the SDDS soft0are more effecti&ely? a general o&er&ie0 and updates on SUTA dumping implementation? updated information about successful detection and in&estigation techniGues and practices? and preparation for hearings and subseGuent appeals. States also reported that the follo0ing staff 0ere most in need of additional trainingF auditors, status analysts and liability personnel, legal department staff, and enforcementHcompliance staff. !n their sur&ey responses, the ma$ority of states e@pressed a preference for state personnel to conduct the training. ,o0e&er, more than 63 states reGuested national and regional office personnel and "eb(based training options. O#'$i#' C$+t+ $) Im -eme#tati$# .ifteen states identified a need for financial support in the area of soft0are, ranging from less than J5,333 in innesota to J83,333 in Alas-a and "ashington. Ten other states reported ongoing costs for hard0are, ranging from J5,633 in 1orth Da-ota to J5A,833 in !llinois. Staff de&elopment 0as the main focus in eight states, 0ith reported needs ranging from J6,C46 in #uerto *ico to J68,333 in 1orth Carolina. any states indicated that no ongoing support 0ill be reGuired. ,o0e&er, staffing remains the primary need, as described earlier. .or e@ample, California has prepared a budget reGuest for 84.4 additional .TEs to be educated on identifying, in&estigating, litigating, and collecting additional contributions due on rate manipulation cases.
Chapter 6 I #age 5E
C;APTER ," E9AL5ATION OF IMPLEMENTATION STRATEGIES

I#tr$%ucti$# This chapter e&aluates the actions ta-en and the results achie&ed by states in their implementation of Section 737=->, SSA. Using information and data pro&ided to the study team through a sur&ey completed by all 87 states and from site &isits to se&en states, the team documented the e@tent to 0hich states ha&e implemented applicable pro&isions of the Act. The o&erall ob$ecti&e of the chapter is to demonstrate 0hat the states ha&e achie&ed in this implementation. As noted pre&iously, the effecti&eness of the Act on a national scale is difficult to determine. ost state la0s 0ere not effecti&e until /anuary 5, 6334, and it 0as not until the third Guarter of 6334 that the ma$ority of states had their SDDS operational. The data collection sur&ey 0as designed to accommodate a report to Congress by /uly 58, 633A, and therefore as-ed states to pro&ide data through the third Guarter 6334. Because nearly half of the state la0s did not become effecti&e until /anuary 5, 6334, this limited the potential a&ailable data to three Guarters.6A Additionally, D3 percent of the states did not begin operating their SDDS until after the data collection ended, pro&iding an additional limitation on the data to be e@amined. These data limitations must be remembered 0hen reading this section. !n initiating their enforcement programs, some states conducted preliminary analyses to determine 0hether or not the potential SUTA dumping cases 0ere significant enough to 0arrant de&oting resources to either retrie&e lost contributions from misapplication of e@perience rating or to pre&ent e&en greater opportunity for losses, or both. Some states decided that their resources 0ere so thin that they could not immediately de&ote any additional manpo0er to pursuing SUTA dumping. 2ther states decided to learn more about the successes and challenges that the early enactors e@perienced and to learn from states that had SUTA dumping pre&ention pro&isions in their state la0s prior to enactment of Section 737=->, SSA. any states had to establish units to trac- and analy:e business transfers, so partial and total transfers could ta-e place as reGuired by the ne0 legislation. .inally, a fe0 states delayed implementation acti&ities for &arious reasons, such as difficulty in getting their SDDS installed and operational, lac- of funding, and lac- of training for staff. !nterestingly, the states achie&ing success in identifying SUTA dumping, conducting in&estigations, ma-ing determinations, issuing assessments of ta@es due, and collecting assessed ta@es approached the initiati&e 0ith a strategic plan that aligned their goals and tactics to ta-e ad&antages of their organi:ational strengths, 0hile shoring up areas of 0ea-ness. A fe0 e@amples follo0 of states reporting success implementing the Act. Te@as is an e@ample of a state that has ma@imi:ed efficiency in its enforcement effort. !t Guic-ly grasped the po0er inherent in the 1C SDDS and ho0 it could aid its continuous impro&ement efforts to ma-e its UC program both more cost efficient and effecti&e. The state too- ad&antage of its fa&orable la0s and regulations, technology, and staff talent to organi:e a system to detect and collect amounts deemed to be SUTA dumping. Te@as collected millions of dollars using a
6A
There 0ere 6D such states as sho0n in Appendi@ B(5. Chapter 7 I #age 63
centrali:ed approach and primarily uses one staff person to identify and determine the amount of assessments recommended for appro&al by T"C management. 1e0 ,ampshire uses a model similar to that of Te@as in that enforcement in&ol&es limited staffing. Small portions of the time of the Chief of Contributions and the Super&isor of the Ta@ Unit =Status Section> are de&oted to the stateBs SUTA dumping efforts. Although the dollar amounts of assessments and collections are smaller than those for Te@as, the reco&ery per hour of resources e@pended compares fa&orably. California is employing the most comprehensi&e, strategic approach to SUTA dumping detection, prosecution, and pre&ention. This approach ma-es sense gi&en the stateBs si:e and comple@ legacy computer systems. !t understandably needed a more robust SDDS than the 1orth Carolina system. Because its legacy systems cannot be replaced or significantly impro&ed in the short(run, California is implementing a 0or-around by building &arious data 0arehouses and connecting them to decision support systems, allo0ing the state to ma-e rele&ant data a&ailable in almost real time. This ma-es it possible for California to ma-e supportable decisions that other0ise could not be made for e@tended periods of time. According to the state, progress is being made 0hile it continues to pursue SUTA dumping 0ith a combination of standard operating procedures and ne0 ones emerging from the ongoing implementation. Utah started its program 0ith limited, designated resources? and the state did not reali:e significant outcomes. ,o0e&er, after strengthening its commitment to eliminating SUTA dumping, assigning ne0 staff, and ta-ing ad&antage of peer(to(peer learning, the state reali:ed large reco&eries from its detection, in&estigation, and enforcement efforts. The remainder of the chapter consists of a descripti&e analysis of the findings from the sur&eys completed by the states. "here appropriate, conclusions ha&e been dra0n from the sur&ey data. S5TA Dum i#' E#)$rceme#t Pr$ce++ 0isco#ery of SU! 0umping States reported using a &ariety of methods to detect SUTA dumping, including leads from agency employees and complaints from employers. See .igure 7.5. ,o0e&er, a common method is the automated detection system that 0as either made a&ailable by D2LHETA =de&eloped under contract 0ith the 1orth Carolina Employment Security Commission> or one that 0as de&eloped by the applicable state or a third(party. Sur&ey responses from the states indicated that A3 percent rated the 1C SDDS and custom(built SDDS as being the most effecti&e method for identifying employers reGuiring in&estigation. Automated detection systems are 0idely used and 0idely &ie0ed as the most effecti&e systems.
Chapter 7 I #age 65
Figure 3.1
Me &$+# $ /e ec SUTA /u0.i"g

10 40 Nu0,er $f S ' e# 70 30 *0 10 0 Age"c) E0.($)ee Cu# $0 S//S NC S//S
E0.($)er C$0.('i" #
O &er UI Age"cie#
O &er S ' e Age"cie#
Me &$+# $f /e ec i$"
Si@teen states reported that their automated detection systems are also effecti&e at detecting other types of ta@ rate manipulation acti&ities not addressed by Section 737=->, SSA. The states ran-ed referrals from agency employees as the second most effecti&e method for detecting SUTA dumping. !n addition to ta@ unit referrals, states reported that referrals from Labor ar-et !nformation staff 0ere also beneficial. .orty(four states =C7 percent of UC programs> ha&e implemented the 1C SDDS as a -ey tool for SUTA dumping management. The technology enables many states to detect and trac- the shifting of employees by employers bet0een and among entitiesHUC accounts for the first time. Despite the o&erall satisfaction 0ith the 1C SDDS, states responded 0ith suggestions for ho0 it could be impro&ed to enhance the usefulness of the soft0areF !ncorporate more current data. Currently, the SDDS is updated Guarterly? ho0e&er, the data are lagging by t0o Guarters. Data need to be more current to detect current changes in employee mo&ement? therefore, data should be loaded more freGuently. #ro&ide the capability to retrie&e the current Guarter so that the SDDS can be used =5> as a case managementHtic-ler system to trac- money disco&ered in pre&ious and upcoming Guarters due to SUTA detection efforts, and =6> to Guery many accounts at one time. !dentify employers that $ust disappear and do not ha&e an entry account. The current soft0are does not identify the drop(off of 0ages from an e@it company unless it has a corresponding entry account =data pairs>. #ro&ide the ability to print selected te@t or pages in a search. At present, only the entire search can be printed? in many cases this yields multiple pages of instances 0here small
O &er
Chapter 7 I #age 66
numbers of employees ha&e changed employers, 0hich can be consistent 0ith normal turno&er. !mpro&e search functions to pro&ide the ability to search addresses of all business locations, not $ust the inde@ed =mailing> address, and to search )doing business as+ =DBAs>, not $ust inde@ed names, such as sole proprietors. Allo0 the system to Guery accounts by inacti&e dates. Allo0 parameter changes on filter searches and standard searches. #ro&ide the ability to cross(match on the names of o0ners, partners, or officers, Social Security 1umbers, etc., and generate a report of those o0ners and officers 0ho are common. Establish a lin- to SDDS databases in contiguous states. This 0ould impro&e detection of employers mo&ing payroll bet0een states. #ro&ide the ability to search by specific 1orth American !ndustry Classification System =1A!CS> codes. #ro&ide a )help+ function that defines &arious fields. Enable users to detect ta@able amounts identified as transferred 0ages.
A#a-y+i+ $) Ca+e+ a#% Re+u-t+ Re $rte% 4y State+ Case 1n#estigations Although most state la0s 0ere not effecti&e until /anuary 5, 6334, states 0ere as-ed in the ay 633A sur&ey to submit data on detection and in&estigations acti&ity for the period /uly 6338 to September 6334. States responded by identifying a total of A,D68 potential SUTA dumping cases and 5,4D3 in&estigations occurred. See Table 7.5.
T',(e 3.1: I"!e# ig' i$"# ,) 9u'r er Ti0e Peri$+ Nu0,er I"!e# ig' e+ ?"ly to Septem2er 2<<5 O$to2er to De$em2er 2<<5 ?an"ary to &ar$* 2<<; April to ?"ne 2<<; ?"ly to Septem2er 2<<; T$ '( 392 2<1 333 2;5 459 1,170
The highest Guarter for in&estigations acti&ity 0as the Guarter ending September 6334. ,o0e&er, one large state began operating its SDDS during that Guarter, and this apparent trend may not continue in future years. The number of potential cases identified and in&estigated by state is sho0n in .igure 7.6.
Chapter 7 I #age 67
Figure 3.*: Nu0,er# $f P$ e" i'( C'#e# I+e" ifie+ '"+ I"!e# ig' e+ *6
Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t D# Delaware Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o
P$ e" i'( I+e" ifie+ I"!e# ig' e+
*ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
<
5<<
1<<<
15<<
2<<<
25<<
6C
The figure does not sho0 any in&estigations in California or assachusetts. California uses a different pro&ision of its UC la0 relating to unity of enterprise. The absence of in&estigations reported only means that California did not e@plicitly use the SUTA dumping pro&ision of their la0. assachusetts 0as unable to pro&ide a count of identified and in&estigated cases. Chapter 7 I #age 6D
The pursuit of cases for Section 737=->, SSA, &iolations 0as not uniform across the UC program. States such as !daho, 1e0 'or-, and "ashington reported large &olumes of potential cases identified, 0hile 67 states reported no acti&ity or 0ere unable to report accurately on their detection and in&estigation acti&ities during the study period. The lac- of acti&ity reported may be a function of delays in installing the SDDS in the states. Em -$yer+ Determi#e% t$ Be i# 9i$-ati$# $) Secti$# ,/,0&12 SSA States reported a total of AA8 cases of &iolations of the mandatory transfer pro&isions =in&ol&ing common management, control, or direction bet0een transferor=s> and transferee=s>> of the la0 and 56 cases 0here employers &iolated the prohibited transfer pro&isions =acGuisitions for purpose of lo0ering a ta@ rate and not for a legitimate business purpose>. %iolations 0ere reported by 73 states, although only eight states reported prohibited transfer &iolations. .ifteen states reported no &iolations, 0hile eight other states 0ere unable to report the number of &iolations found. 2f the states that reported mandatory transfer &iolations, only 5A pro&ided details on the industries of the &iolators. 2f the AA8 mandatory transfer &iolations reported, 85D occurred in these 5A states. .igure 7.7 sho0s the industrial mi@ of the mandatory transfer &iolators reported. The largest category listed is )other+ =763 of the 85D cases>, an indication of pre&alence across much of the industrial structure. The remaining categories sho0 that 67 percent of the cases 0ere from construction, nine percent from employee leasing, and se&en percent from the hospitality industry.
Figure 3.3: Nu0,er $f M'"+' $r) Tr'"#fer Vi$(' i$"#, ,) I"+u# ri'( Sec $r
C$"# ruc i$", 111
E0 .($)ee Le'#i"g, 77 O &er, 3*0 :$#.i '(i ), 37
Chapter 7 I #age 68
.igure 7.D sho0s that 8 of the 56 prohibited transfer &iolation cases 0ere from the employee leasing industry.
Figure 3.7: Nu0,er $f Pr$&i,i e+ Tr'"#fer Vi$(' i$"#, ,) I"+u# ri'( Sec $r
E0.($)ee Le'#i"g, 4
O &er, 3
!t should be noted that the small number may reflect a longer ta@ a&oidance process for prohibited transfers &is(M(&is mandatory transfers. A mandatory transfer &iolation occurs at the time of the transfer and is identified by the mo&ement of employees to a different employer account. Under a prohibited transfer, 0or-ers and payroll are transferred to a ne0 account, but increased benefit charges start to accrue to that account in later periods. There 0ill often be a lag in disco&ery, and the UC agency 0ill often face a burden(of(proof issue in determining that the transfer 0as underta-en to a&oid U! ta@es, as opposed to other possible business reasons for the transfer. Since the empirical data offered here refer to the first nine months of 6334, these lags may ha&e been operating to reduce the number of prohibited transfer cases identified at the time the states 0ere responding to the sur&ey. Completed cases 0ith findings of &iolations are not confined to one state or region of the U.S. States documenting D3 or more mandatory transfer &iolations included Colorado, Connecticut, !llinois, Louisiana, #ennsyl&ania, and Utah. Eight different states had completed a case in&ol&ing prohibited transfers. .igure 7.8 displays the distribution of mandatory and prohibited transfer &iolation cases reported by the states.
Chapter 7 I #age 64
Figure 3.4: M'"+' $r) '"+ Pr$&i,i e+ Tr'"#fer Vi$(' i$" C'#e# -e.$r e+ *;
Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t D# Delaw are Florida Aeor'ia 0aw aii +da*o +llinois +ndiana +ow a =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
M'"+' $r) Tr'"#fer C'#e# Pr$&i,i e+ Tr'"#fer C'#e#
<
2<
4<
;<
9<
1<<
12<
14<
6E
The table does not sho0 any &iolations disco&ered in assachusetts or ichigan. The absence of &iolations reported for ichigan only means that it did not e@plicitly use the SUTA dumping pro&ision of its la0 to mandate the transfer of e@perience. assachusetts 0as unable to supply a count of mandatory or prohibited transfer &iolations. Chapter 7 I #age 6A
Conducting the SUTA dumping in&estigations reGuires a substantial e@penditure of staff resources during the period 0hen 0age records for the first Guarter are loaded into the SDDS system. The sur&ey of the states as-ed about the Guarterly pattern of cases and 76 states pro&ided detail. 2f the 64 states that identified a single high Guarter, 6D indicated it 0as the first Guarter. The first Guarter 0as also identified by the fi&e states that identified t0o high Guarters of &iolations. .igure 7.4 displays the Guarterly pattern among the 64 states that identified a single high Guarter, 6D in the first Guarter and one each in the third and fourth Guarter.
Figure 3.1
9u'r er() Se'#$"'(i ) -ec$g"i2e+ ,) S ' e#
<1
D1 D2 D3 D4
24
Despite the a&ailability for the first time of a penalty directed at those 0ho ad&ise employers to e&ade the la0, only E of the 73 states that reported one or more SUTA &iolations cited the in&ol&ement of a financial ad&isor in a SUTA dumping scheme. See .igure 7.A.
Chapter 7 I #age 6C
Figure 3.3: Perce" 'ge $f S ' e# <i & A+!i#$r# /i#c$!ere+
9 1 7%
23 43%
21 40%
Advisors Discovered States
No Advisor Discovered States
No Inform ation
A++e++me#t+ a#% Rec$verie+ *eports submitted by 87 UC agencies indicate that 6A states assessed employers an additional J536,6EC,774 in contributions, penalty, and interest for &iolating state SUTA dumping statutes.73 Details are presented in Table 7.6. A ma$ority of the assessments =i.e., A6 percent> occurred on mandatory transfer &iolations. #enalties ha&e been assessed by se&en states, although some states may ha&e utili:ed pre(Section 737=->, SSA, statutes to assess them. 1o state reported penalty assessments in cases of prohibited transfers.
T',(e 3.*: A0$u" /e er0i"e+ /ue f$r &e Peri$+ E"+i"g Se. e0,er *001 T).e $f Pe"'( ) Additional -a/es D"e Fines Ot*er @enalties +nterest @ayment T$ '( M'"+' $r) Tr'"#fer# E79,<19,215 E< E1,<95,932 E1,554,<<9 =61,14;,141 Pr$&i,i e+ Tr'"#fer# E2<,345,123 E< E< E294,<57 =*0,13;,160
*eports on the collection of assessed amounts indicate that 66 states obtained J86,D84,CEE in contributions, penalty, and interest. See Table 7.7. "hile collections normally lag behind assessments, especially 0hen cases become the sub$ect of an appeal, initial ta@ reco&eries on mandatory transfer &iolations amounted to 8C percent of assessed contributions, and collected penalties eGualed 46 percent of assessed penalties. ,o0e&er, the collection of contributions on prohibited transfer &iolations amounted to only 5A percent of assessments.
73
2f the 73 states that identified SUTA dumping &iolations, three =Alas-a, %ermont and "yoming> did not assess penalties or did not indicate the amounts in their sur&ey responses. Chapter 7 I #age 6E
T',(e 3.3: A0$u" C$((ec e+ f$r &e Peri$+ E"+i"g Se. e0,er *001 T).e $f Pe"'( ) M'"+' $r) Tr'"#fer# Pr$&i,i e+ Tr'"#fer# Additional -a/es D"e E45,949,;7< E3,343,7<4 Fines Ot*er @enalties +nterest @ayment T$ '( E< E;75,542 E2,452,993 =76,;36,1;4 E< E< E135,<<< =3,736,307
Although mandatory transfer cases are more numerous than prohibited cases, their a&erage &alue is substantially less than the a&erage &alue for prohibited transfer cases. See Table 7.D.
T',(e 3.7: T$ '( Nu0,er $f Vi$(' i$"# '"+ A!er'ge /$(('r# .er C'#e # Violations $ Determined Avg.$/Case $ Recovered Avg.$/Case 775 E91,;59,15; E1<5,3;7 E49,979,195 E;3,199 12 363 E2<,;39,19< =10*,*;6,331 E1,719,932 =1*;,;64 E3,479,7<4 =4*,741,6;; E299,992 =11,147
&andatory @ro*i2ited
T$ '(
"hile se&eral states reported fairly high collection rates, other states ha&e been limited in the amounts they ha&e been able to reco&er because of appeals and the inability to collect follo0ing affirmation of a determination of liability. .igure 7.C sho0s amounts assessed and collected by the states.
Chapter 7 I #age 73
Figure 3.6: A0$u" # /e er0i"e+ '"+ C$((ec e+ fr$0 M'"+' $r) Tr'"#fer C'#e#
Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t D# Delaware Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin' < 5 1< 15 2< 25
A0$u" /e er0i"e+ i" = Mi((i$" A0$u" C$((ec e+ i" = Mi((i$"
Chapter 7 I #age 75
0eterminations and Reco#eries per Staff 2ear The a&erage amount of ta@ re&enue reco&ered per staff dedicated to SUTA dumping implementation in the states 0as J685,A57, about four times the national cost of a ta@ staff year. Table 7.8 sho0s the a&erage assessment and reco&ery by .TE staff.
T',(e 3.4: A!er'ge A##e##0e" # '"+ -ec$!erie# .er S 'ff)e'r A!er'ge = /e er0i"e+ A!er'ge = -ec$!ere+ T$ '( Per FTE S 'ff Per FTE S 'ff F-. Staff 2<984< E49<,975 E251,713
ea-+
!he ppeals Process !n most states, the UC la0 pro&ides for t0o le&els of hearings on liability determinations. The first hearing is usually held before a hearings officer appointed by the UC agency director or a state agency set up to pro&ide fair hearings for se&eral state agencies. The second appeal opportunity normally ta-es place before an appeals panel that is often independent of the UC agency. Appeals to court in&ol&e the legal department of the UC agency and may in&ol&e the office of the attorney general in the state. Appeals by employers cited for SUTA dumping &iolations 0ill follo0 this route. ppeals cti#ities and Results #reliminary data pro&ided by the states indicate a lo0 &olume of appeals acti&ity nation0ide. Thirteen states reported appeals to SUTA dumping determinations, but 68 of the DC cases appealed by employers to date ha&e originated in t0o states. UC agency determinations ha&e been upheld at the first le&el of appeals at a rate of CE percent. ,o0e&er, it is too early in the implementation process to form any conclusions about the results reported by states. See Table 7.4.
T',(e 3.1: -e#u( # $f A..e'(# $f SUTA /u0.i"g /e er0i"' i$"# '"+ A##e##0e" # (43 S ' e# -e.$r i"g) Nu0,er $f /eci#i$"# /e er0i"' i$" Perce" A..e'(# C'#e# I##ue+ Affir0e+ Affir0e+ Lower Le!el 49 39 34 99% 0i'*er Le!el 1< 9 7 79% #o"rt 4 4 4 1<<%
Summary During the initial period follo0ing the enactment of state la0s, most of the states successfully implemented an automated detection system. A total of ACA potential &iolations 0ere identified and in&estigations 0ere underta-en in about 66 percent of the cases. Si@teen states 0ere unable to report any acti&ity, either because they did not maintain the case processing data that 0as reGuested in this study or they had not underta-en any in&estigations. The o&er0helming focus
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Chapter 7 I #age 76
has been on &iolations of the mandatory transfer pro&isions of Section 737=->, SSA. 2&erall J536,6EC,774 has been assessed by 64 states and J86,D84,CEE reco&ered. Liability determinations issued to employers after in&estigations ha&e been upheld 0hen challenged, for the most part, but appeals acti&ity 0as &ery limited during the initial implementation period.
Chapter 7 I #age 77
C;APTER ." IMPACTS OF SECTION ,/,0K12 SSA2 ON T;E PROFESSIONAL EMPLO:ER ORGANI>ATION IND5STR:
The study also e@amined e@perience rating in the #rofessional Employer 2rgani:ation =#E2> industry as part of the broader re&ie0 of ta@ a&oidance acti&ities by employers. The #E2 industry primarily pro&ides to o0ners and operators of small businesses =)client companies+> assistance 0ith their fringe benefit programs, human resources functions, and payroll ta@ matters. The 1ational Association of #rofessional Employer 2rgani:ations =1A#E2> estimates that 6.3I 7.3 million 0or-ers in the U.S. are co&ered by #E2 contracts. After enactment of the SUTA Dumping #re&ention Act, the Subcommittee on ,uman *esources of the ,ouse "ays and eans Committee conducted a hearing on its implementation.75 During this hearing, se&eral members of the Subcommittee e@pressed interest in the relationship bet0een #E2s and e@perience rating, and ho0 state la0s &ary regarding the treatment of #E2s. .or purposes of the UC program, a matter of interest is 0hether the #E2 is the employer or 0hether the indi&idual client remains the employer. !n some states, the client remains the employer for UC purposes. As e@plained in more detail belo0, other states allo0 the #E2 to be considered the employer for UC purposes. !n these states, the #E2 generally recei&es one contribution rate annually, based on its UC e@perience in the state, and applies that rate to the ta@able 0ages paid to all 0or-ers at client companies. "ithout the #E2, the client companies 0ould ha&e faced UC e@perience rates based on the claims e@perience of the indi&idual company. The sections that follo0 include a description of the #E2 industry, a summary of state e@perience rating pro&isions that affect #E2s, a discussion of the financial impact of #E2s on state accounts in the unemployment trust fund and on the operations of UC agencies, the status of in&estigations into SUTA dumping la0 &iolations, and the initial impact of state la0s reGuired by Section 737=->, SSA, on the #E2 industry. De+cri ti$# $) the PEO I#%u+try 3hat re PE.s4 #rofessional Employer 2rgani:ations, or #E2s, primarily pro&ide o0ners and operators of small businesses assistance 0ith their fringe benefit programs, human resources functions, and payroll ta@ matters. !n return for a negotiated percent of total payroll, client companies recei&e payroll preparation ser&ices, .ederal and state employment ta@ filing ser&ices, and assistance in implementing employee relations and employee fringe benefit programs. ost often, the 0or-force at the client company is also co&ered for health insurance, 0or-ers compensation, and unemployment insurance through the #E2. !n some cases, the employees are also offered an opportunity to participate in D35=-> plans, buy disability insurance, and access other pre(ta@ benefits. #E2s primarily deli&er ser&ices to small businesses. The sur&ey of states conducted
75
The hearing 0as held on /une 5D, 6338. The transcript of the hearing is a&ailable at httpFHH0aysandmeans.house.go&Hhearings.aspNformmodeO&ie0PidO75E6 E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Chapter D I #age 7D
for this research re&ealed a&erage employee si:es at client companies ranging from 4 to 6D in the 57 states that pro&ided data. As noted abo&e, for purposes of the UC program, a matter of interest is 0hether the #E2 is the employer or 0hether the indi&idual client remains the employer. Some states reGuire that all 0or-ers of an employer, including any subsidiary, be reported under a single UC account number. Thus, #E2s are not permitted to group employees from clients in multiple UC ta@ accounts in these states, and they recei&e an e@perience rate based upon all client employees reported under the single account. any states allo0 the #E2 to be considered the employer of the 0or-forces in their clients. Some states also permit subsidiaries of #E2s to be treated as employers for UC purposes. As a result, some #E2s register multiple subsidiary corporations 0ith a state and obtain a UC ta@ account number for each subsidiary. According to industry representati&es, these subsidiaries allo0 the #E2 to group together clients 0ith similar risprofiles, thus protecting clients from cost increases for UC or 0or-ers compensation that 0ould result if they 0ere grouped 0ith higher cost clients. Current Scope of PE. .perations in the States The si:e of the #E2 industry in the U.S. is difficult to measure because of the &arious methodologies used by states to identify and count #E2s operating 0ithin a state. .or the purposes of this report, the #E2 estimate is based on the employer count by state UC agencies. Table D.5 sho0s the estimates of #E2s in the state made by the state UC agencies using a&ailable UC data. !t should be noted that BLS, using its Luarterly Census of Employment and "ages =LCE"> reports a larger number of #E2s than reported in the sur&ey used for this report.76 !n 5EE4, <*A Corporation published the results of a 5EED sur&ey of 87 states =<*A, 5EEA>. T0enty(four states pro&ided estimates of the number of leased employees, 0ho 0ould no0 be described as being in a #E2 arrangement, resulting in an estimated U.S. total of 43C,5EC 0or-ers. T0enty(nine states pro&ided estimates of the number of employee leasing companies operating in their state in 5EE7. The U.S. total 0as estimated to be 7,448 firms. These numbers are rising. *esponding to the sur&ey of State UC officials in ay 633A, D8 UC agencies reported a total of E,4EC #E2s, e&en though eight states 0ere unable to supply an estimate from their administrati&e records. ichigan, .lorida, California, and 2hio reported the largest number of #E2s. The estimates by states are included in Table D.5.
76
.or e@ample, BLS reported 57,4DC #E2s for the 6334 calendar year. !n the sur&ey, Dela0are reported no #E2s in the state because they do not recogni:e #E2s as the employer of any client 0or-er. BLS methodology determined 54 such #E2s e@ist in Dela0are. E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Chapter D I #age 78
T',(e 7.1: S ' e E# i0' e# $f &e Nu0,er $f PEO# O.er' i"g i" *003 (43 S ' e# -e.$r i"g) S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o ? 1;9 42 +NAC ;3 919 5<4 3< < +NA 9;5 223 4 12< S'e +llinois +ndiana +owa =ansa =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri ? 3<< 425 47 43; 1<< 197 52 19< 7< 1,49< 193 +NA 3<4 S'e &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania ? 3; 5< 147 49 114 +NA 137 125 43 7<< +NA 111 1;5 S'e @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin' TOTAL ? ;5 173 ;5 2 2;2 2<< 1<1 37 +NA +NA 275 +NA 19< 49 ;,1;6
C +NA is information not a!aila2le8
State UC officials 0ere as-ed in the 633A SUTA dumping implementation sur&ey to report the industries in their states that most fre%uently contracted 0ith #E2s. 2nly 5D states =.lorida, Colorado, !llinois, <ansas, aine, innesota, ississippi, issouri, 1e0 ,ampshire, 1e0 'or-, 1orth Da-ota, Tennessee, Utah, and "yoming> 0ere able to supply estimates of both client companies and their related 0or-forces by industry. See Table D.6.
T',(e 7.*: E# i0' e# $f &e Nu0,er $f C(ie" C$0.'"ie# '"+ -e(' e+ >$r%f$rce# i" Se(ec e+ I"+u# rie# &' M$# Fre5ue" () u#e &e Ser!ice# $f PEO# (17 S ' e# -e.$r i"g) Se(ec e+ Nu0,er $f E# i0' e+ T$ '( A!er'ge E0.($)ee# I"+u# ri'( Sec $r C(ie" C$0.'"ie# >$r%#i e E0.($)ee# .er >$r%#i e 0ealt* #are and So$ial Assistan$e 1,239 17,351 14 #onstr"$tion 11,795 9;,295 9 eal .state 921 4,7<3 ; &an"fa$t"rin' 931 17,5<1 19 Finan$e and +ns"ran$e 1,1<1 7,<17 ; Administrati!e and 3aste Ser!i$es ;;1 11,;35 19 @rofessional and -e$*ni$al Ser!i$es 1,;57 2<,343 12 etail -rade 2,<49 24,945 12 3*olesale -rade 59 4<9 7 A$$ommodation and Food Ser!i$es 57< 9,14; 1; -ransportation 229 1,47; ; Ot*er Ser!i$es 2,929 42,919 15 Leis"re and 0ospitality 1,953 35,527 19
Chapter D I #age 74
Regulation of the PE. 1ndustry -y States #E2s that employ staff 0ho 0or- 0ithin a state are reGuired to register 0ith the UC agency in order to pay contributions on their 0ages and maintain a UC account for claims purposes. As pri&ate businesses, #E2s also ha&e to register 0ith the secretary of state, the state ta@ department, and other agencies. ,o0e&er, some states also specifically reGuire #E2s to register 0ith an additional state agency in order to do business in that state. "ithin the se&en states &isited for this study, si@ of them reGuire =by la0 or regulation> #E2s to register 0ith an agency other than the UC agency. 2ne state 0ith substantial #E2 acti&ity, California, does not reGuire this registration. .lorida, 1e0 ,ampshire, and Te@as reGuire both a license to operate as a #E2 and registration. *esults from the sur&ey are included in Table D.7
T',(e 7.3: -egu(' i$" $f &e PEO I"+u# r) i" Si e Vi#i S ' e# UC -e.$r i"g: -egi# r' i$" UC -e.$r i"g: Lice"#i"g C(ie" -e5uire+ ,e)$"+ >$r%er# ,) -e5uire+ C$0.'") Li# # UC Acc$u" C(ie" @>$r%#i e -e5uire+ No No No No Bes Bes Bes Bes No Bes No No Bes Bes Bes Bes Bes Bes Bes No No Bes Bes Bes No Bes No No UC -e.$r i"g: Ne< C(ie" # No Bes Bes Bes No No No
S'e #alifornia Florida &i$*i'an New 0amps*ire -e/as %ta* 3as*in'ton
Reporting Re,uirements of PE.s to the UC gency !n response to the 633A sur&ey of UC officials, 7Dstates =Table D.D> reported that they reGuire special registration of #E2s as a condition for doing business.
T',(e 7.7: S ' e# -e5uiri"g PEO# $ -egi# er <i & ' S ' e Age"c) $ &er &'" &e UC Age"c) '# ' C$"+i i$" $f O.er' i"g (*003) (43 S ' e# -e.$r i"g) S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o F F F F F S'e +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri F F F F S'e &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania F F F F F F F F F F S'e @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin' F F F F F F F F F
F F F
F F F
#E2s in these states are reGuired to register 0ith agencies such as the Department of !nsurance =1orth Carolina>, the Department of Consumer Affairs =South Carolina>, and the Department of
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Chapter D I #age 7A
Commerce = innesota>. They meet special reporting, financial, go&ernance, andHor other compliance standards imposed specifically on #E2s. .ailure to continue to meet those standards places a #E2Bs operation in that state at ris-. 5#em -$yme#t C$m e#+ati$# Ex erie#ce Rati#' a#% the PEO I#%u+try 0etermination of the Employer States ha&e generally ta-en three approaches to e@perience rating employers that enter into contracts 0ith #E2sF 5. The #E2 is treated as the employer of their clientsB 0or-forces for e@perience rating purposes once a contract is signed. 6. The #E2 replaces the client company as the entity that is assigned a contribution rate only under &ery special circumstances. 7. The client company remains the employer for e@perience rating purposes, despite the e@istence of a contract 0ith a #E2. The ay 633A sur&ey of 87 UC programs reGuested UC officials to report if the state recogni:es =by la0, regulation, or policy> the #E2 as the employer of client company 0or-forces for e@perience rating purposes and reGuires the #E2 to pay contributions under its o0n UC ta@ number, based on its unemployment e@perience. The most common approach to e@perience rating, as reported by 74 states, is to consider the #E2 as the employer of 0or-site employees for ta@ rate assignment purposes.
Chapter D I #age 7C
T',(e 7.4: S ' e# &' Tre' &e PEO '# &e E0.($)er f$r EA.erie"ce -' i"g Pur.$#e# 8) -egu(' i$", S'e 8) S ' u e -u(e, '"+@$r P$(ic) Ala2ama F Ari>ona F Ar6ansas F #alifornia / #olorado F Distri$t of #ol"m2ia / Florida F Aeor'ia FC 0awaii F +da*o F +llinois F F +ndiana F =ansas F Lo"isiana FC &aine F &aryland F &i$*i'an F &isso"ri F F &ontana F Ne!ada F New 0amps*ire F New &e/i$o F New ?ersey F New Bor6 F Nort* #arolina F O*io F O6la*oma F Ore'on F @"erto i$o F -ennessee F -e/as F %ta* F F 3as*in'ton FC 3est Vir'inia F 3is$onsin F 3yomin' F
C Aeor'ia reG"ires a 2ond in order for t*e @.O to 2e treated as t*e employer8 C Lo"isiana law reG"ires t*e @.O to p"r$*ase a E1<<,<<< s"rety 2ond in order to 2e re$o'ni>ed as t*e rated employer8 C 3as*in'ton State law will $*an'e effe$ti!e ?an"ary 1, 2<<98
This treatment of #E2s by the UC system reflects an increase from the 5EE3s, 0hen only 6A states reported that #E2s 0ere treated as the employer =<*A, 5EEA>. The geographic distribution of states in this category of treatment is broad, co&ering all regions in the U.S. 1ine of the ten largest UC programs =in terms of sub$ect employers> allo0 the #E2 to become the employer for e@perience rating purposes. #ennsyl&ania is the only one of the ten largest states that does not treat the #E2 as the employer. !n some states, special conditions ha&e to e@ist in order for the UC program to recogni:e a #E2 as the e@perience(rated entity. !n !daho, 0here the #E2 and the client company are considered
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Chapter D I #age 7E
co(employers, the #E2 becomes the liable employer only if the #E2 elects to do so. California regards the #E2 as the employer only 0hen se&en factors detailed in California Unemployment !nsurance Code =CU!C> Section 434.8 are met. ichigan reGuires #E2s to meet the reGuirements of Administrati&e *ule 5E3, including not o0ning more than 63 percent of any client company, and retain the right to hire, fire and discipline 0or-ers. !n Ar-ansas, bonded #E2s must report the 0or-force of ne0 clients under the clientBs account and rate for three consecuti&e years before reporting the 0or-ers under the #E2Bs account. !n Colorado, a #E2 can report client 0or-forces under its account number and rate or under the number and rate of the 0or-site employer. !n contrast, 5A =Table D.4> states consistently treat the client company as the rated employer, despite the e@istence of a contract 0ith a #E2. Contributions paid by the #E2 on the ta@able 0ages paid to 0or-ers at the clientBs 0or-place are calculated at the clientBs ta@ rate and credited to each clientBs UC account number. !nsofar as state la0 pro&ides, benefits paid are charged to that same client account so that the liable employer is charged. This finding represents a measurable increase from the 5EE3s 0hen from nine to 5D states =the e@act number cannot be precisely determined> treated the client company as the employer =<*A, 5EEA>.
T',(e 7.1: S ' e# &' Tre' &e C(ie" C$0.'") '# &e E0.($)er f$r EA.erie"ce -' i"g Pur.$#e# 8) -egu(' i$", S'e 8) S ' e S ' u e -u(e, '"+@$r P$(ic) Alas6a F #onne$ti$"t F Delaware F +owa F =ent"$6y F &assa$*"setts F &innesota FC &ississippi F Ne2ras6a F Nort* Da6ota FC @ennsyl!ania F *ode +sland F So"t* #arolina F So"t* Da6ota FC Vermont F Vir'in +slands F Vir'inia F C +n &innesota, for $ontra$ts ena$ted on or after ?an"ary 1, 2<<;, @.Os
are re$o'ni>ed as t*e employer, 2"t t*ey m"st report wa'es paid and pay $ontri2"tions on 2e*alf of ea$* $lient $ompany "nder a separate a$$o"nt for t*at $lient $ompany and at a rate assi'ned to t*e $lient8 Nort* Da6otaHs law 2e$ame effe$ti!e as of ?"ly 1, 2<<58 So"t* Da6ota re$o'ni>es a @.O if t*e @.O *as a le'al ri'*t to $ontrol wor6site employees and *as an onsite s"per!isor8
C C
The latest state to adopt this approach is "ashington, 0hich enacted legislation in April 633A. The ne0 la0, effecti&e /anuary 5, 633C, 0ill reGuire UC contributions to be paid on behalf of a client company using the contribution rate assigned to the client company, based on its e@perience.
Chapter D I #age D3
State Experience Rating Pro#isions pplied to PE.s and Clients The 633A SUTA dumping implementation sur&ey reGuested data regarding the transfer of unemployment e@perience 0hen companies enter into and e@it from a #E2 contract. ;enerally, responses from the states indicate that there is no attempt in the UC program to transfer e@perience 0hen an employer decides to enter into the contract 0ith a #E2. !n most of the 74 states 0here the #E2 is treated as the employer for e@perience rating purposes, UC e@perience is not transferred 0hen clients enter into or e@it from a contract 0ith a #E2. o&ement from one #E2 to another follo0s the same pattern. "hen a client company e@its from a #E2 contract and enters into a contract 0ith another #E2, the clientBs UC e@perience established 0hile under contract usually remains 0ith the original #E2. ,o0e&er, there are e@ceptions to the national pattern. Si@ states reGuire e@perience attributable to the client company to be transferred from the #E2 to the client 0hen a contract ends. "hen a contract is signed in aryland, 2-lahoma, or "yoming, the #E2 is considered a successor to the client company and the unemployment e@perience is transferred to the #E2. !n !ndiana, a transfer of e@perience is reGuired 0hen a client company enters into or e@its from a contract 0ith a #E2. !n "ashington, 0hen a contract is signed or se&ered, a predecessorHsuccessor relationship is established and the employees in&ol&ed are considered assets. Therefore, the unemployment e@perience must be transferred. !n 1e0 /ersey, 0hen a contract ends, if the #E2 contract has been in effect for less than t0o years, the e@perience attributable to the client during the time period is transferred from the #E2 to the client. !n !daho, the state reGuires transfer =total or partial> of a client companyBs UC e@perience to the #E2 0hene&er a #E2 elects to report a client under the #E2Bs account number. A transfer of e@perience is also reGuired 0hen the client company e@its from the contract. ssignment of a Contri-ution Rate !n states that usually treat the #E2 as the employer of record, the management of the client companyBs UC account usually follo0s the practice used by most states 0hen a company ceases operations and subseGuently decides to reemploy a 0or-force. !n 73 states, 0hen a client company enters into a #E2 contract, the clientBs UC account is immediately suspended if the client no longer pays any 0ages. !f the client returns to the UC system as an employer 0ithin appro@imately t0o years, an e@perience rate is calculated and assigned if there is a basis in state la0 for doing so. ,o0e&er, if the client company returns beyond a period set by state UC la0 =usually t0o or three years>, the companyBs unemployment e@perience is disregarded and the stateBs ne0ly sub$ect employer rate is assigned to the client.
Chapter D I #age D5
E+timate% Fi#a#cia- Im act $) PEO+ $# State Acc$u#t+ i# the 5#em -$yme#t Tru+t Fu#% a#% $# O erati$#+ $) the 5C A'e#cy PE. 1mpacts on UC Benefit Financing and UC dministrati#e Costs Under the e@perience rating reGuirements of the UC program nation0ide, total unemployment trust fund re&enues 0ill, o&er time, be the same, 0ith or 0ithout ta@ rate manipulation schemes. Benefit outlays in a state must be financed by a corresponding inflo0 of re&enue =%roman, 5EE3>. ,o0e&er, in those states 0here the #E2 is considered the employer, the share of the total contributions paid by the #E2 industry &ersus other industries 0ill be affected by both direct benefit charges and the magnitude of sociali:ed costs. !n Te@as, California, ichigan and .lorida, 0hen a business contracts 0ith a #E2, the unemployment e@perience of the client company is left behind. !f the client company no longer pays 0ages, the account is treated the same as if it had ceased operations. !neffecti&e benefit charges attributable to that client company become sociali:ed costs. State UC officials differed in their perceptions of the impact of #E2 operations on financing of the unemployment insurance program. Te@as officials ac-no0ledged that net additional contributions flo0 to the stateBs account in the unemployment trust fund 0hen a #E2 acGuires a client in the third or fourth Guarter of the calendar year or a client company re(enters the system as an employer in the second half of the year. ,o0e&er, other state officials belie&e net re&enue to the stateBs account in the unemployment trust fund could actually decrease o&er time in this situation 0hen the #E2 en$oys a lo0er ta@ rate than the recently acGuired client company. California officials do not belie&e there are significant additional contributions paid as a result of a #E2 ha&ing to pay contributions on the same 0age base because most #E2 contracts start in the first calendar Guarter. ichigan UC officials did not pro&ide estimates of the effects of #E2s on total re&enue in the stateBs account in the unemployment trust fund. #E2 representati&es nation0ide present a different picture of the impact of #E2s on the sol&ency of state accounts in the unemployment trust fund. #E2s maintain that they are minimi:ing the number of claims improperly paid by agencies? that they are carefully managing UC claims and that they use effecti&e human resources policies to reduce employee separations. .urther they maintain that many client companies encounter higher UC ta@ costs upon contracting 0ith a #E2. .or e@ample, the 1ational Association of #rofessional Employer 2rgani:ations =1A#E2> representati&es argued that the inability of #E2s to ta-e credit for contributions paid earlier in a calendar year results in substantial additional flo0 of re&enue to state accounts in the unemployment trust fund =Ernst and 'oung, 6334>.77 ,o0e&er, #E2 industry representati&es ac-no0ledged during site &isits that the ma$ority of ne0 clients are placed under contract in the first Guarter of the calendar year. !ndustry representati&es and UC officials 0ere unable to pro&ide certain data on the impact of #E2s on administrati&e costs. #E2 industry representati&es stressed the administrati&e sa&ings
77
This study references the e@ecuti&e summary of and the Ernst and 'oung report findings to help e&aluate the state treatment of #E2s in ichigan and .lorida. 1either .lorida nor ichigan reGuires the transfer of e@perience, including credits to0ard the ta@able 0age base, 0hen the client enters a #E2 relationship. ,o0e&er, it should be noted that other states do reGuire the transfer of e@perience 0hen a client enters into a #E2 relationship, or 0hen a client 0or-force mo&es from one #E2 to another. !n this scenario, the #E2 0ould be credited 0ith payments made to the ta@able 0age base Chapter D I #age D6
accruing to states 0hen #E2s file for multiple businesses. Additionally, ha&ing a central site for auditors should result in costs sa&ings. They also assert an impro&ement in ta@ compliance by client companies. UC officials in Te@as and ichigan estimated some sa&ings in billing, cash management, report processing, and collections acti&ities. ,o0e&er, they pointed to burdensome tas-s associated 0ith re(establishing ta@ accounts 0hen a #E2 ceases operations and cautioned that not all #E2s ha&e good histories of pro&iding timely and accurate reports. California officials 0ere unable to Guantify any administrati&e sa&ings reali:ed 0hen a #E2 reports multiple client accounts under one #E2 account number. ,o0e&er, CaliforniaBs Employment De&elopment Department =EDD> officials e@pressed concern about the agencyBs ability to set up and administer thousands of ne0 employer accounts if #E2s accelerate the recent trend to0ard disaggregation of UC accounts. 2fficials maintain that current resources at EDD are not adeGuate for ta-ing on this 0or-load. Preve#ti$# $) S5TA Dum i#'" PEO Ca+e 9i$-ati$#+ Detecte% a#% I#ve+ti'ate% Si#ce the E#actme#t $) Secti$# ,/,0&12 SSA2 a#% Im -eme#tati$# $) Re-ate% State La=+ State UC officials =California, .lorida, ichigan, and Te@as> inter&ie0ed in 6334 reported the follo0ing illegal rate manipulation practicesF Creation of ne0 #E2 accounts to escape a high ta@ rate assigned to an e@isting #E2 due to substantial benefit charges AcGuisition of an e@isting business 0ith a lo0 ta@ rate, follo0ed by a transfer of 0or-forces from client companies to the ne0ly acGuired entity Transfer of client company 0or-forces among e@isting #E2 subsidiary corporations so that ta@able 0ages can be reported under the account number 0ith the lo0est ta@ rate
All four states &isited in 6334 0ere dealing 0ith the initial implementation of changes in the la0 due to Section 737=->, SSA. As a result, compliance and enforcement acti&ities described to the research team focused almost e@clusi&ely on #E2 industry beha&ior ri$r t$ passage of .ederal and state legislation designed to deter and detect rate manipulation schemes. Therefore, it is too early to determine 0hether Section 737=->, SSA, and the corresponding state la0s, ha&e effecti&ely curbed or eliminated the rate manipulation schemes described abo&e. 1ndustry Concentration of SU! 0umping Cases Currently under 1n#estigation #re&ious studies of ta@ rate manipulation schemes found a concentration of state in&estigations in the construction, employee leasing, and hospitality industries =ETA, 6336>. Thirty states, responding to the sur&ey in ay 633A, reported finding &iolations of the ne0 la0. .ifteen other states reported no &iolations and eight states 0ere unable to respond to the sur&ey reGuest. 2f the 73 states 0ith &iolations, 5A 0ere able to report &iolations by industry. These 5A states indicated that D8 percent of the cases under in&estigation come from the construction, employee leasing and hospitality industries.
Chapter D I #age D7
T',(e 7.3: SUTA /u0.i"g I"!e# ig' i$"# ,) S ' e# i" Cer 'i" I"+u# rie# Si"ce &e E"'c 0e" $f S ' e L'<# -e5uire+ ,) Sec i$" 303(%), SSA (13 S ' e# -e.$r i"g) Se(ec e+ I"+u# ri'( NAICS M'"+' $r) Tr'"#fer Pr$&i,i e+ Tr'"#fer Sec $r C$+e C'#e# C'#e# #onstr"$tion 23;, 237, 239 11; < .mployee Leasin' 5;133 44 5 0ospitality 721 34 < Ot*er +nd"stries 32< 7 T$ '( 417 1*
!n these 5A states, #E2s represented nine percent of the 864 case in&estigations underta-en during the initial implementation of SUTA dumping pre&ention legislation. Pri#ci a- Fi#%i#'+ Based on reports from the 87 states of their implementation of the SUTA dumping detection reGuirements, the follo0ing findings are offeredF A. Thirty(si@ states =UC programs> allo0 the #E2 to be treated as the employer. The other 5A UC programs reGuire the #E2 to pay UC contributions under each client companyBs account number and at the ta@ rate assigned to the client, based on its unemployment e@perience. B. Thirty(four states reGuire #E2s to register 0ith a state agency other than the UC agency. C. #reliminary state data re&ealed that DD #E2s had been found in &iolation of the la0. The #E2 industry total represented nine percent of the mandatory transfer &iolations of Section 737=->, SSA, that 0ere found in the 5A states that reported on the industry of the &iolators. D. ;enerally, state UC e@perience rating reGuirements do not reGuire the transfer of unemployment e@perience 0hen a client signs a contract 0ith a #E2, mo&es from one #E2 to another, or e@its from a contract and establishes a UC ta@ account.
Chapter D I #age DD
C;APTER 3" FINDINGS AND CONCL5SIONS

State Im -eme#tati$# $) Secti$# ,/,0&12 SSA Effecti#eness of 1mplementation -y the States All 83 states, the %irgin !slands, #uerto *ico, and the District of Colombia enacted conforming legislation that became effecti&e in either 6338 or 6334. T0enty(eight states =87 percent> reported that they 0ere !ery satisfied 0ith the pro&isions of their state SUTA dumping la0s and 67 others reported that they 0ere generally satisfied. .orty(fi&e states reported that the en&ironment for detection, in&estigation, and enforcement of SUTA dumping la0s has impro&ed since the enactment of section 737=->, SSA. 1ot only has the enactment of the .ederal la0 raised the a0areness of employers regarding the illegality of SUTA dumping acti&ities, it has also raised the le&el of attention state UC agency employees gi&e to this issue. Also, DD states reported that using resources to detect and pre&ent SUTA dumping has constituted a 0orth0hile in&estment and has ser&ed to impro&e the integrity of the UC ta@ system. The ne0 detection tools made a&ailable by ETA ha&e enabled most states to efficiently identify shifts in 0or-forces among registered employing units for the first time. .orty(four states ha&e implemented the automated detection soft0are de&eloped by 1orth Carolina, and other states ha&e in&ested resources to de&elop a system that 0ill ser&e their needs. States ha&e dedicated an a&erage of almost four staff years to implement their la0s, principally by reallocating e@isting staff to this tas-. ost states ha&e centrali:ed SUTA dumping acti&ities in this early phase of implementation and some of the larger states ha&e assigned full(time staff to the function. A substantial staff training effort has already ta-en place and states ha&e identified additional training needs. ost states ha&e begun to analy:e the results of their Guarterly detection runs and to assign cases for in&estigation. The 5,4D3 in&estigations that ha&e been underta-en ha&e yielded o&er J536 million in assessments during the time period of this study. T0enty(t0o states ha&e collected an additional J86,D84,CEE in UC ta@es. The ma$ority of states ha&e focused on &iolations of the )mandatory transfer+ pro&isions of Section 737=->, SSA? ho0e&er, additional ta@es of J7,DAC,A3D ha&e been collected from cases that &iolated the )prohibited transfer+ portion of the Act. Some of the large states are still de&oting considerable resources to in&estigating and pursuing SUTA dumping acti&ities that occurred prior to the passage of Section 737=-> of the Social Security Act. Barriers to Effecti#e 1mplementation of State "a$s .orty(nine states identified a lac- of adeGuate financial and staffing resources as a barrier to effecti&e implementation of Section 737=->, SSA, and D5 of those reported it as the greatest barrier to enforcement. ost states di&erted staff from other assignments to implement SUTA dumping detection and enforcement acti&ities.
Chapter 8 I #age D8
Lac- of access to information technology =!T> resources 0as the second highest barrier noted, 0ith 74 percent of the states citing access to !T as a barrier. Complications in&ol&ing legal and procedural issues 0ere cited as barriers in appro@imately 73 percent of the responses /eed for dditional Federal "egislation and5or .ther Federal ction T0enty(three states =D7 percent> indicated that additional .ederal legislation andHor other action QUnemployment !nsurance #rogram Letter =U!#LH.ederal *egulations, etc.>R is needed to impro&e the effecti&eness of SUTA dumping detection, pre&ention, and enforcement. States 0ere as-ed to identify additional actions that should be ta-en to pre&ent SUTA dumping? they consider .ederal action to be most appropriate in the follo0ing areasF 5. assachusetts and 2regon responded that more prescripti&e language should be pro&ided at the .ederal le&el defining 0hat constitutes )-no0ing+ &iolations and )misrepresentation+ in order to trigger penalties. They belie&e that current la0 has sho0n limited success in the ability to pro&e intent in order to impose penalties ontana, 2hio, #uerto *ico, Utah, and "ashington responded that consideration should be gi&en to reGuiring the disclosure of information bet0een and among states 0hen employers ha&e accounts in neighboring states? this disclosure 0ould help to eliminate )state line $umping.+
6.
7. !n response to the sur&ey, 57 states indicated that .ederal clarification is needed regarding the role of #E2s and their status. Si@ states = ontana, 1orth Da-ota, 1e0 'or-, South Carolina, Tennessee, and %irginia> e@pressed the opinion that .ederal legislation is needed to ma-e the handling of #E2s more uniform. 2ne state, Colorado, belie&es that the #E2 should be the reporting entity and all ta@ reports should be submitted under the #E2 account number. Si@ states =!daho, !o0a, ichigan, innesota, 2hio, and issouri> belie&e that the client company should be considered the employer and all ta@ reports should be submitted under the client account number. ichigan and 1e0 'or- both stated that unemployment e@perience should be transferred bet0een a client company and a #E2 0hen entering and e@iting a contractual relationship D. 2ne state, California, indicated that .ederal legislation 0as needed to reGuire that monetary penalties, deri&ed from SUTA dumping cases, be prohibited from being added to the employerBs reser&e account balance in )reser&e ratio+ e@perience rating states. "ithout such a prohibition, this amounts to con&erting a penalty into a contribution to the employerBs reser&e account. /eed for !echnical ssistance and5or !raining Almost all states ha&e indicated a need for additional training. Listed belo0 are the training needs identifiedF Strategies for more effecti&ely using SDDS soft0are ;eneral o&er&ie0 and updates on SUTA dumping pre&ention, detection and enforcement implementation
Chapter 8 I #age D4
Successful detection and in&estigation techniGues and practices #reparation for hearings and subseGuent appeals
States most often cited a need for both technical assistance and training in the use and implementation of the 1C SDDS. The e@pertise of staff assigned to use the SDDS &aries significantly. Therefore, it is essential that timely, effecti&e technical assistance be pro&ided. To that end, ETA has facilitated t0o user group conference calls to pro&ide updates on the current status of 0or- in progress and proposed short(term and long(term pro$ects. Im act+ $) Secti$# ,/,0&12 SSA $# Pr$)e++i$#a- Em -$yer Or'a#i?ati$#+ Based on reports from the 87 states of their implementation of the SUTA dumping detection reGuirements, the follo0ing findings are offeredF A. Thirty(si@ states =UC programs> allo0 the #E2 to be treated as the employer. The other 5A UC programs reGuire the #E2 to pay UC contributions under each client companyBs account number and at the ta@ rate assigned to the client, based on its unemployment e@perience. B. Thirty(four states reGuire #E2s to register 0ith a state agency other than the UC agency. C. #reliminary state data re&ealed that DD #E2s had been found in &iolation of the la0. The #E2 industry in total represented nine percent of the mandatory transfer &iolations of Section 737=->, SSA, found in the 5A states that reported on the industry of the &iolators. D. ;enerally, state UC e@perience rating reGuirements do not reGuire the transfer of unemployment e@perience 0hen a client signs a contract 0ith a #E2, mo&es from one #E2 to another, or e@its from a contract and establishes a UC ta@ account. E. UC ta@ treatment of #E2s under indi&idual state la0s has remained largely unchanged to date. 1o ne0 regulatory burden has been promulgated as a result of .ederal or state SUTA dumping legislation. The #E2 industry continues to e@pand. SubseGuent research 0ill be reGuired to determine 0hether Section 737=->, SSA, and the corresponding state la0s, ha&e effecti&ely curbed or eliminated the rate manipulation schemes described by state UC officials.
Chapter 8 I #age DA
BIBLIOGRAP;:
Bureau of Labor Statistics. ?uarterly ,ensus of Employment and 7ages. httpFHHstats.bls.go&Hce0Hpeoplebo@.htm94. Ernst and 'oung. Impacts of Professional Employer @rganiAations on State Unemployment #a)es" #repared for the 1ational Association of #rofessional Employer 2rgani:ations. /une 5, 6334. <*A Corporation. Employee Leasing: Implications for State Unemployment Insurance Programs@ Unemployment !nsurance 2ccasional #aper EA(5, U. S. Department of Labor, Employment and Training Administration, 5EEA. ichigan Department of Labor and Economic ;ro0th, Unemployment !nsurance Agency. State Unemployment #a) Act 1SU#A2 Bumping Annual >eport, /anuary 6334. 1A#E2 "ebsite. httpFHH000.napeo.orgHpeoindustryHindustryfacts.cfm =accessed on 633A>. arch 4,
Te@as Labor Code, Subtitle E. *egulations of Certain 2ccupations, Chapter E5. Staff Leasing Ser&ices, Subchapter A. ;eneral #ro&isions, section E5.335. U. S. Census Bureau. 6336. 1A!CS Definitions. httpFHH000.census.go&H cgi(binHepcdHsrchnaics36defs. U. S. Department of Labor, Employment and Training Administration. Unemployment !nsurance #rogram Letter 1o. 7D(36, August E, 6336. %roman, "ayne. Unemployment Insurance #rust =und Ade%uacy in the -66's" <alama:ooF ". E. Up$ohn !nstitute, 5EE3.
Bibliography I #age DC
APPENDIX A: SUTA DUMPIN
P!E"ENTI#N A$T
#%
&00'
TE8T OF P@L@ !/A7(B3 An Act To amend titles !!! and !% of the Social Security Act to impro&e the administration of unemployment ta@es and benefits. :e it enacted by the Senate and Couse of >epresentati!es of the United States of America in ,ongress assembled, SECTION !@ S;ORT TITLE@ This Act may be cited as the SSUTA Dumping #re&ention Act of 633DT. SEC@ (@ TRANSFER OF 5NEMPLO:MENT E8PERIENCE 5PON TRANSFER OR ACC5ISITION OF A B5SINESS@ =a> !1 ;E1E*AL(Section 737 of the Social Security Act =D6 U.S.C. 837> is amended by adding at the end the follo0ingF S=->=5> .or purposes of subsection =a>, the unemployment compensation la0 of a State must pro&ide(( S=A> that if an employer transfers its business to another employer, and both employers are =at the time of transfer> under substantially common o0nership, management, or control, then the unemployment e@perience attributable to the transferred business shall also be transferred to =and combined 0ith the unemployment e@perience attributable to> the employer to 0hom such business is so transferred, S=B> that unemployment e@perience shall not, by &irtue of the transfer of a business, be transferred to the person acGuiring such business if(( S=i> such person is not other0ise an employer at the time of such acGuisition, and S=ii> the State agency finds that such person acGuired the business solely or primarily for the purpose of obtaining a lo0er rate of contributions, S=C> that unemployment e@perience shall =or shall not> be transferred in accordance 0ith such regulations as the Secretary of Labor may prescribe to ensure that higher rates of contributions are not a&oided through the transfer or acGuisition of a business, S=D> that meaningful ci&il and criminal penalties are imposed 0ith respect to(( S=i> persons that -no0ingly &iolate or attempt to &iolate those pro&isions of the State la0 0hich implement subparagraph =A> or =B> or regulations under subparagraph =C>, and S=ii> persons that -no0ingly ad&ise another person to &iolate those pro&isions of the State la0 0hich implement subparagraph =A> or =B> or regulations under subparagraph =C>, and S=E> for the establishment of procedures to identify the transfer or acGuisition of a business for purposes of this subsection. S=6> .or purposes of this subsection((
Appendi@ A I #age DE
S=A> the term Sunemployment e@perienceT, 0ith respect to any person, refers to such personTs e@perience 0ith respect to unemployment or other factors bearing a direct relation to such personTs unemployment ris-? S=B> the term SemployerT means an employer as defined under the State la0? S=C> the term SbusinessT means a trade or business =or a part thereof>? S=D> the term ScontributionsT has the meaning gi&en such term by section 7734=g> of the !nternal *e&enue Code of 5EC4? S=E> the term S-no0inglyT means ha&ing actual -no0ledge of or acting 0ith deliberate ignorance of or rec-less disregard for the prohibition in&ol&ed? and S=.> the term SpersonT has the meaning gi&en such term by section AA35=a>=5> of the !nternal *e&enue Code of 5EC4.T. =b> STUD' A1D *E#2*T!1; *ELU!*E E1TS( =5> STUD'( The Secretary of Labor shall conduct a study of the implementation of the pro&isions of section 737=-> of the Social Security Act =as added by subsection =a>> to assess the status and appropriateness of State actions to meet the reGuirements of such pro&isions. =6> *E#2*T( 1ot later than /uly 58, 633A, the Secretary of Labor shall submit to the Congress a report that contains the findings of the study reGuired by paragraph =5> and recommendations for any Congressional action that the Secretary considers necessary to impro&e the effecti&eness of section 737=-> of the Social Security Act. =c> E..ECT!%E DATE( The amendment made by subsection =a> shall, 0ith respect to a State, apply to certifications for payments =under section 736=a> of the Social Security Act> in rate years beginning after the end of the 64(0ee- period beginning on the first day of the first regularly scheduled session of the State legislature beginning on or after the date of the enactment of this Act. =d> DE.!1!T!21S( .or purposes of this section(( =5> the term SStateT includes the District of Columbia, the Common0ealth of #uerto *ico, and the %irgin !slands? =6> the term Srate yearT means the rate year as defined in the applicable State la0? and =7> the term SState la0T means the unemployment compensation la0 of the State, appro&ed by the Secretary of Labor under section 773D of the !nternal *e&enue Code of 5EC4. SEC@ ,@ 5SE OF NEW ;IRE INFORMATION TO ASSIST IN ADMINISTRATION OF 5NEMPLO:MENT COMPENSATION PROGRAMS@ Section D87=$> of the Social Security Act =D6 U.S.C. 487=$>> is amended by adding at the end the follo0ingF S=C> !1.2* AT!21 C2 #A*!S21S A1D D!SCL2SU*E T2 ASS!ST !1 AD !1!ST*AT!21 2. U1E #L2' E1T C2 #E1SAT!21 #*2;*A S( S=A> !1 ;E1E*AL( !f, for purposes of administering an unemployment compensation program under .ederal or State la0, a State agency responsible for the administration of such program transmits to the Secretary the names and social security account numbers of indi&iduals, the Secretary shall disclose to such State agency information on such indi&iduals and their employers maintained in the 1ational Directory of 1e0 ,ires, sub$ect to this paragraph. S=B> C21D!T!21 21 D!SCL2SU*E B' T,E SEC*ETA*'( The Secretary shall ma-e a disclosure under subparagraph =A> only to the e@tent that the Secretary determines that the disclosure 0ould not interfere 0ith the effecti&e operation of the program under this part. S=C> USE A1D D!SCL2SU*E 2. !1.2* AT!21 B' STATE A;E1C!ES(
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC, and Urban !nstitute Appendi@ A I #age 83
S=i> !1 ;E1E*AL( A State agency may not use or disclose information pro&ided under this paragraph e@cept for purposes of administering a program referred to in subparagraph =A>. S=ii> !1.2* AT!21 SECU*!T'( The State agency shall ha&e in effect data security and control policies that the Secretary finds adeGuate to ensure the security of information obtained under this paragraph and to ensure that access to such information is restricted to authori:ed persons for purposes of authori:ed uses and disclosures. S=iii> #E1ALT' .2* !SUSE 2. !1.2* AT!21( An officer or employee of the State agency 0ho fails to comply 0ith this subparagraph shall be sub$ect to the sanctions under subsection =l>=6> to the same e@tent as if such officer or employee 0as an officer or employee of the United States. S=D> #*2CEDU*AL *ELU!*E E1TS( State agencies reGuesting information under this paragraph shall adhere to uniform procedures established by the Secretary go&erning information reGuests and data matching under this paragraph. S=E> *E! BU*SE E1T 2. C2STS( The State agency shall reimburse the Secretary, in accordance 0ith subsection =->=7>, for the costs incurred by the Secretary in furnishing the information reGuested under this paragraph.T.
Appendi@ A I #age 85
APPENDIX (: )E
IS)ATI#N
A
S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o /' e L'< E"'c e+ <9:<5:2<<5 <5:19:2<<; <4:22:2<<5 <3:17:2<<5 <9:29:2<<4 <5:25:2<<5 <;:2:2<<5 <7:12:2<<5 <3:23:2<<; <;:1<:2<<5 <5:1<:2<<5 <;:<9:2<<5 <2:19:2<<5 <7:21:2<<5 <4:2;:2<<5 <5:<3:2<<5 <4:15:2<<5 <3:<2:2<<5 <7:<1:2<<5 <5:19:2<<5 <5:2;:2<<5 11:22:2<<5 <5:<4:2<<5 <5:2;:2<<5 <3:1;:2<<5 <7:<;:2<<5 <4:29:2<<5 <;:<2:2<<5 <5:19:2<<5 <7:14:2<<5 12:19:2<<5 <4:<;:2<<5
e#%ix B7!" Le'i+-ati$#

M'"+' $r) Tr'"#fer Se$8 25I4I9($)(1) Se$8 2382<8297(a)(1) Se$823I7338<1(A) Se$811I1<I723(a)(1) Se$81<;1(a)(1)J(a)(2) Se$81<4(2)(2) Se$831I22328($) Se$83353(1) D8#8 Offi$ial #odeSe$851I 1<3(3)(n)(1) Se$84438131(3)(')(1)(a) Se$834I9I153(')(1) Se$8393I;;(2)(1) -itle 72I1351A(1)(a) 92< +L#S 4<5:Se$815<781(A) (1) #*apter 1185I7(a)(2)($) Se$89;87(2)(2)(2) #*apter 44I Arti$le 71<a8(2)(1) (A) #*apter 341854<(2) S 23K153981(1)(1) J S 23K153981(.) Se$81221 5(A)A(1) Se$89I;31(e)(1) #*apter 151A, Se$14N(a) Se$8421822(2)(2)(a) Se$82;98<51 S"2di!ision 4(a) (1)J2 and (2)(1)and (2) Se$871I5I355(3)(a)(1) Se$8299811<82 Se$839I51I1219(1)(a) 49I;548<1(2)(a) ;12855<89(a) 292IAK91Ia(+)(a)(1) 43K21I7($)(7)(D) 51I1I11(0)(4) Pr$&i,i e+ Tr'"#fer Se$825I4I9($)(2) Se$8 2382<8297(a)(2) Se$823I7338<1(1) Se$811I1<I723(2) Se$81<52 Se$81<4(+)($) Se$831I22328(2) Se$83353(2) D8#8 Offi$ial #ode Se$851I1<3(3)(n)(2) Se$4438131(3)(')(2) Se$834I9I153(')(2) Se$8393I;;(2)(2) -itle 72I1351A(2) 92< +L#S 4<5:Se$815<781(1) #*apter 1185I9(a)(1)J(2) Se$89;87(2)(2)(3) #*apter 44I Arti$le 71<a8 (2)(1)(3) #*apter 341854<(;)(2) S823K153981(1)(2) Se$81221 5(A)1 Se$89I;13($) #*apter 151A, Se$814(N) (2)(1) Se$8421822(2)(2)(2) Se$82;98<51 S"2di!ision 4a(a)(3) Se$871I5I355(3)(2) Se$8299811<83 Se$839I51I1219(5)(a)(i) and (ii) 49I;548<1(2)(2) ;12855<89($) 292IAK91Ia(+)(2) 43K21I7($)(7)(F) 51I1I11(0)(5) Appendi@ B I #age 86
Effec i!e /' e $f L'< <9:<5:2<<5 <1:<1:2<<; <9:11:2<<5 <3:17:2<<5 <1:<1:2<<5 <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; <7:<1:2<<5 <7:<1:2<<; <;:<9:2<<5 <7:<1:2<<5 <1:<1:2<<; <1:<1:2<<; <7:<1:2<<5 <1:<1:2<<; <;:2<:2<<5 <9:15:2<<5 <;:29:2<<5 <1:<1:2<<; <1:<1:2<<; <7:<1:2<<5 <9:<1:2<<5 <1:<1:2<<5 <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; 12:15:2<<5 <9:19:2<<5
S'e New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'inia Vir'in +slands 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
/' e L'< E"'c e+ <9:<2:2<<5 <9:2<:2<<5 <4:25:2<<5 <;:<2:2<<5 <5:1;:2<<5 <5:13:2<<5 <;:15:2<<5 <9:1;:2<<5 <7:15:2<<5 <5:<3:2<<5 <2:15:2<<5 <;:<7:2<<5 <;:19:2<<5 <3:<1:2<<5 <;:<7:2<<5 <3:21:2<<5 <9:<9:2<<5 <3:14:2<<; <9:29:2<<5 12:29:2<<5 <3:<2:2<<5
Effec i!e /' e $f L'< <1:<1:2<<; 12:<1:2<<; <7:<1:2<<5 9:<5:2<<5 11:<1:2<<5 <1:<1:2<<; <1:<1:2<<; <7:<1:2<<5 <1:<1:2<<; <5:<3:2<<5 <2:15:2<<5 <1:<1:2<<; <9:<1:2<<5 <3:<1:2<<5 <7:<1:2<<5 <1:<1:2<<; <1:<1:2<<; <1:<1:2<<; <9:29:2<<5 <1:<1:2<<; <7:<1:2<<5
M'"+' $r) Tr'"#fer 59187(a)(1) A8S89;I9($)(4)(a)(1) and (2) 52I<4I<98281(a) Se$84141824(A)(1) Se$84<I3I11181(A)(1) Se$8;57849<(1) Se$83<1(d)(1)(1) Law74,Se$89(')(1)(A) Se$829I43I35(a) Se$841I31I125(A) Se$8;1I5I3281(1) Se$85<I7I4<3(2)(2)(#) Se$82<48<93 Se$835AI4I3<4(3)(a) Se$82181325(d)(1) Se$8;<82I53;81(A) -itle 24,#*apter 12,Se$83<9(1) (i)(2)A) #3 5<8298<;2(2)(2)(ii) 21AI5I1<$(a)(1) Se$81<981;(9)(e)1 Se$827I3I5<7($)
Pr$&i,i e+ Tr'"#fer 59187(2) A8S89;I9($)(4)a 52I<4I<98282 Se$84141824(A)(2) Se$84<I3I11181(A)(2) Se$8;57849<(2)(a) Se$83<1(d)(1)(A) Law74,Se$89(')(2) Se$829I43I35($) Se$841I31I125)1)(1) (2)J(3) Se$8;1I5I3281(2) Se$85<I7I4<3(2)(2)(D) Se$82<48<94(f) Se$835AI4I3<4(4)(a) Se$82181325(d)(2) Se$8;<82I53;81(1)(1) -itle 24,#*apter 12,Se$83<9(1)(i)(3) #3 5<8298<;3(1) 21AI5I1<$(2) Se$81<981;(9)(im) Se$827I3I5<7(e)
Appendi@ B I #age 87
A
S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire
e#%ix B7(" Pe#a-ty Le'i+-ati$#

Cri0i"'( Pe"'( ie# Se$825I4I9($)(3)82(i!) Se$8 382<8299(2)($)(d)J(e) Se$823I7338<1(#)(3) Se$811I1<I723($)(;)(A) Se$821<18<;(a)J(2) Se$81<4(1<(d) Se$83I22328(e) Se$83353(3)a828d D8#8 Offi$ial #ode Se$851I 1<4(4)(@)(3) Se$84438131(3)(')(5) Se$834I9I153(*)(;) Se$8393I;;(2)(7) -itle 72I1351A(4) 92< +L#S 4<5:Se$815<781(.) #*apter 1185I1< Se$89;81;(5) #*apter44IArti$le 719(f)(4) (1) #*apter 341854<(9) S 23K153981(D) Se$812215(A)(#) Se$89I;14(f)J(')) #*apter 151A, Se$847 Se$84218222(2)($) Se$82;98194 S"2di!ision 28 (1)(2) and (3) Se$871I5I355(3)($)(i!) Se$8299811<84(2) Se$8 39I51I1219(7)($) 49I;548<1(3)(2) ;12873<81 and 2 292IAK91Ia(+)(f)(1)(1)(2) K"$<i"g() Vi$(' e+ L'< Se$825I4I9($)(3)82(i) Se$82382<831<(9) Se$823I7338<1(A)(1) Se$811I1<I723(4) Se$8977($) Se$81<4(11)(a) Se$831I22328(a)(1) Se$83353(3)a8282 D8#8 Offi$ial #ode Se$851I 1<4(4)(@)(1)(A) Se$84438131(3)(')(4)(a) Se$834I9I153(*)(2) Se$8393I;;(2)(;)(A) -itle 72I1351A(5)(2) 92< +L#S 4<5:Se$815<781(A) #*apter 1185I;(1) Se$89;81;(5) #*apter 44IArti$le 719(f)(2) #*apter 341I54<(1)($) S 23K153981(A)(1) Se$81221 5(A)D(1) Se$89I;14(a)(2) #*apter 151A, Se$814N(') (2) Se$84218222(5)(a) Not Defined Se$871I5I355(3)($)(ii) Se$8299811<85(2) Se$8 39I51I1219(9)(a) 49I;548<1(1)(a) ;128732(;)(2) 292IAK91Ia(+)(*)(1) Appendi@ B I #age 8D
Ci!i( Pe"'( ie# Se$825I4I9($)(3)(a)(1) and 2 Se$8 2382<8297 (2)(1) and (2) and ($) Se$823I7338<1(#)(1) Se$811I1<I723($)(1) Se$8977($) Se$81<4(1<)(a) Se$831I2232(d)J8(d)(1)J8(d) (2) Se$83353(3)a81J2 D8#8 Offi$ial #ode Se$851I 1<4(4)(@)(2)A)J(1) Se$84438131(3)(')(3)J(3)(') (3)(a)J(3)(')(3)(2) Se$834I9I153(*)(1) Se$8393I;;(2)(3)(A) -itle 17I1351A(3)(a)(i)I (i!)J(3)(2)(ii) 92< +L#S 4<5:Se$815<781(#)J81(#) (1)J81(#)(2)J81(D) #*apter 1185I9(a)J(2) (1)J(2)(A)(1 Se$89;81;(5) #*apter 44IArti$le 719(f)(1) (A) J (1) #*apter 341I54<(7) J #*apter 3418999(9) S 23K153981(#) J 81(#)(2) Se$81221 5(A)(#)J5(A)#(1) Se$89I;14($)J(d) J ($)(1) #*apter 151A, Se$814N(') (1) J (')(1)(i) and (iii) J (') (1)(ii)and(iii) Se$84218222(2)($)(i)(A)(1) and (ii) Se$82;98194 S"2di!ision 1a8(a)(2)($) Se$871I5I355(3)($)(i) Se$8299811<84(1) Se$8 39I51I1219(7)J(7) (a)J7(2) 49I;548<1(3)(a) ;128732(2) and (3) 292IAK91Ia(+)(f)(1)Ja(+)(f)(1)
S'e
Ci!i( Pe"'( ie# (A)Ja(+)(f)(1)(1)
Cri0i"'( Pe"'( ie#
K"$<i"g() Vi$(' e+ L'<
New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'inia Vir'in +slands 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
43K21I1;(2)(3) 51I1I11(0)(9) 59187($)(1) and (2) 1<5I23;(2)(;) 52I<4I<98283 Se$84141849(#) Se$84<I3I11181(1)(1) Se$8;57849<(3)(a) and (2) Se$89<281(a)(2)I(4) Law74,Se$815($) Se$829I43I35(d)J(d)(i)J(d) (ii) Se$841I31I125(D) Se$8;1I5I3282 Se$85<I7I4<3(2)(2)(A) Se$82<48<97(a)J(2)J($) Se$835AI4I3<4(5)(a) Se$82181325(d)(3)J(d)(3) (A)J(d)(3)(1) Se$8;<82I53;83(A) -itle 24,#*apter 12,Se$83<9(1)(i)(4)(A) #3 5<8298<;3(2) 21AI5I1<$($)(1) Se$81<981;(9)(m) Se$827I3I7<;(a)
43K21I1;(e)(2) 51I1I11(0)(9) 59187($)(2) 1<5I23;(a)(7),(9),(9a) 52I<4I<98284 Se$84141899(F) Se$84<I3I11181(1)(4) Se$8;57899<(3) Se$89<2(a)(1) Law74,Se$815(2) Se$829I43I35(d)(4) Se$841I41I3< Se$8;1I5I3282 Se$85<I7I4<3(2)(2)(A)(+++) Se$82<48<97(e) Se$835AI4I3<4(5)(2)(i) Se$821813258(d)4(#) 1982I2<483(A) -itle 24, #*apter 12,Se$83<9(1)(i)(4)(D) #3 5<8298<;3(2)(2) 21AI5I1<$($)(4) Se$81<981;(9)(m)(3) Se$827I3I7<;(a)(iii)
43K21I1;(2)(3)J(e)(2) 51I1I11(0)(1)(f) 59187(1)($)(3) A8S89;I9(29) 52I<4I<<183 Se$84141849(A)(1) Se$84<I3I11181(1)(2) Se$8;57849<(3)($) Se$89<2(d) Law74,Se$89(a)(12) Se$829I43I35(d)(2) Se$841I31I125(D) Se$8;1I5I3282 Se$85<I7I4<3(2)(2)(0)(i) Se$82<48<91(;) Se$835AI4I3<4(1)(a) Se$82181325(d)4(1) Se$8;<82I53;85 -itle 24, #*apter 12,Se$83<9(1)(i)(4)(1) #3 5<8298<;3(4)(a) 21AI5I1<$($)(2) Se$81<981;(9)(m) Se$827I3I7<;(a)
Appendi@ B I #age 88
A
S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota
e#%ix B7," Mi+ce--a#e$u+ Le'i+-ative Pr$vi+i$#+

/efi"i i$" $f Per#$" Se$825I4I9($)(3)82(iii) Not defined Se$823I7338<1(A)(2) Se$811I1<I723(e)(1) Se$81145(2) Se$81<4(11)(2) Se$831I22328(a)(2) Se$83353(5)8a D8#8 Offi$ial #ode Se$851I 1<4(4)(@)(1)(1) Se$84438131(3)(')(7)(a) Se$834I9I153(*)(4) Se$8393I;;(2)(;)(#) -itle 72I1351A(5)($) Not defined #*apter 1185I3 Not defined #*apter44I Arti$le 719(f)(;) (A) Not defined S 23K153981(A)(2) Se$81221 5(A)D(2) Se$89I;13(a)(3) #*apter 151A, Se$14N(6) Se$4218222(5)(2) Se$82;98<35 S"2di!ision 21 Se$871I5I355(3)(e)(i) Not defined Se$8 39I51I1219(9)(2) 49I;548<1(1)(2) ;128732(;)(a) 292IAK91Ia81(*)(2) Not defined Not defined 59187(e) Not defined Not defined I" er.re ' i$" Se$825I4I9($)(3)82(i!) Se$8 2382<8297(d) Se$823I7338<1(.) Se$811I1<I723(f) Se$81<;1(2) Did not $ontain Se$831I22328(') Se$83353(;) D8#8 Offi$ial #ode Se$851I1<4(4)(@)(4) Se$84438131(3)(')(9) Not adopted Se$393I;;(2)(9) -itle 72I1351A(7) 92< +L#S 4<5:Se$815<781(0) #*apter 1185I11(2) Not adopted #*apter 44I Arti$le 719(f) (7) Not adopted S 23K153981(A) Se$812215(A)F Not adopted #*apter 151A, Se$14N(*) Se$84218222(;) Se$2;98194 S"2di!ision 15 Se$871I5I355(3)(f) Se$8299811<87 Se$8 39I51I1219(1<) Not adopted Not adopted 292IAK91Ia(++) Not adopted Not adopted Not adopted Not adopted 52I<4I<981 Appendi@ B I #age 84
/e ec i$" Pr$ce+ure# Se$825I4I9($)(3)82(i!) Se$82382<831< Se$823I7338<1(F) Se$811I1<I723(d) Se$833; Se$81<4(;) Se$83I22328(f) Se$83353(4) D8#8 Offi$ial #odeSe$851I 1<3(3)(n)(1) Se$84438131(3)(')(;) Se$34I9I153(*)(7) Se$8393I;;(2)(9) -itle 72I1351A(;) 92< +L#S 4<5:Se$815<781(F) #*apter 1185I11(a) Se$89;87(2)(2)(3) #*apter 44I Arti$le 719(f) (5) #*apter 341854<(9) S 23K153981(F) Se$81221 5(A). Se$89I;14(e) #*apter 151A, Se$814N(i) Se$84218222(2)(e) Not spe$ified Se$871I5I355(3)(d) Se$8299811<8; Se$8 39I51I1219(9) 49I;548<1(4) ;128732(a)J(2) 292IAK91Ia8(+)(') 43K21I11(1) 51I1I11(0)(7)(2) 59187(d) A8S89;I9($)(4)(a)(2) 52I<4I<981
S'e O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o
/e ec i$" Pr$ce+ure# Se$84141824(0) Se$84<I3I11181(#) Se$8;57849<(4) Se$82<1(a) 2<1(A) Se$829I43I35(e) Se$841I31I125(.) Se$8;1I5I3383 Se$85<I7I4<3(2)(2)(+) Se$82<48<99 Se$835AI4I3<4(;) Se$82181325(d)5 Se$8;<82I53;81(D) -itle 24,#*apter 12,Se$83<9(1)(i)(5) #3 5<8298<;3(9) 21AI5I1<$(d) Se$81<981;(9)(n) Se$827I3I5<7(f)
/efi"i i$" $f Per#$" Se$84141849(A)(2) Se$84<I3I11181(D)(1) Not defined 4(4)(1) defines employer $onsistent w LpersonM (+ # of 199;) Law74,Se$89(a)(14) Se$829I43I35(f)(1) Not defined Se$8;1I5I3284 Se$85<I7I4<3(2)(2)(0)(+++) Se$82<48<91(2) Se$835AI4I3<4(1)(2) Se$82181325(d)4(#) Se$8;<82I53;(5) -itle 24,#*apter 12,Se$83<9(1)(i)(;)(A) #3 5<8298<;3(4)(2) 21AI5I1<$(e)(1) Not defined Not defined
I" er.re ' i$" Not adopted Se$84<I3I11181(.) Se$8;57849<(4) Not adopted Not adopted Se$829I43I35(') Not adopted Se$8;1I5I3285 Se$85<I7I4<3(2)(2)(?) Se$82<48<99 Se$835AI4I3<4(7) Not adopted Se$8;<82I53;84 -itle 24,#*apter 12,Se$83<9(1)(i)(7) Not adopted 21AI5I1<$(f) Se$81<981;(9)(o) Not adopted
*ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'inia Vir'in +slands 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
Appendi@ B I #age 8A
APPENDIX $: SUTA DUMPIN
DETE$TI#N S*STEMS
S'e
/' e /e ec i$" S)# e0 O.er' i$"'( <4:2<<; <1:2<<7 <7:2<<; <7:2<<; <;:2<<5 <;:2<<; <;:2<<; <5:2<<; <;:2<<7 Limited <9:2<<; <9:2<<; <7:2<<5 1<:2<<; <2:2<<; 12:2<<5 Anti$ipate <9:2<<7 <;:2<<; @lanned 9:2<<7 Software installed5 not operational <9:2<<;5 "p'rade installed <1:12:<7 <9:2<<5 <5:2<<; +n pro$ess of 2e$omin' operational 11:2<<; <1:2<<; 2<<4 (parti$ipated as small state pilot) 11:2<<; <2:2<<; <5:2<<7 <;:2<<7 <7:2<<; F F F F F F F F F F F F F F F F F F F F F F F F NC@S//S F
T).e $f /e ec i$" S)# e0 O &er ONI@oint A3A . System
Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6
.SD 3a'e Lin6 Dete$tion System
FLAS%DDS &AN%AL N AA.N#B 3= D"ery 1ased 7I2<<5
State #"stomi>ed ONI@oint A3A .
Data2ase D"ery in$l"ded in %+ redesi'n
N0 SDDS
NB SDDS Appendi@ C I #age 8C
S'e
/' e /e ec i$" S)# e0 O.er' i$"'( <7:2<<5 <5:2<<; <3:2<<; <5:2<<; <9:2<<; <2:2<<; <1:2<<7 Sprin' 2<<5 <;:2<<; <7:2<<; 1<:2<<5 <9:2<<5 <1:2<<; 1<:2<<; 11:2<<4 1<:2<<; <9:2<<4 <1:2<<7 <9:2<<; <5:2<<7 F F F F F NC@S//S De!eloped SDDS F F F
T).e $f /e ec i$" S)# e0 O &er
Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'inia Vir'in +slands 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
Ora$le data2ase sear$* en'ine
F (limitedI li$ensin' iss"e) F F F F F F (@ilot State) F F (s"pplemented 2y state system) F
Appendi@ C I #age 8E
APPENDIX D: T!AININ
S'e
Nu0,er $f S 'ff Tr'i"e+ $" SUTA /u0.i"g
Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansas =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina
T'A 1; 25 4 2 3<4C 59 2 1; 2 2 12< < 92 1<9 71 5< 49 51 7; 2 2< 52 1;2 3; 59 151 2< 24 32 3< 3< 5; 57 3<
Leg'( < < < < < < < < < 2 < < < 3 < < < < 2 < < 1 1< < 1 1 2 2 1 5 < < < 3
A..e'(# < < < < < < < < < < < < < 5 < < < < < < < 45 (in$l"des 1< *i'*er a"t*ority) 9 < < ; 1 < 2 4 < < < < Appendi@ D I #age 43
S'e
Nu0,er $f S 'ff Tr'i"e+ $" SUTA /u0.i"g
Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'inia Vir'in +slands 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
T'A 32 153 45 9 372 2 23 4 ;< 152 3<< 1< 14 2 1 41 3 ;2 21
Leg'( < < 1 < 4 < 1 1 3 < < < < < < < < < <
A..e'(# < < < < < < < < 4 < < 1 < < < < < < <
C #alifornia trained 3<4 staff5 "na2le to separate o"t 2y a$ti!ity8
Appendi@ D I #age 45
APPENDIX E: UI EXPE!IEN$E !ATIN EMP)#*E! #% !E$#!D

S'e Ala2ama Alas6a Ari>ona Ar6ansas #alifornia #olorado #onne$ti$"t Delaware Distri$t of #ol"m2ia Florida Aeor'ia 0awaii +da*o +llinois +ndiana +owa =ansa =ent"$6y Lo"isiana &aine &aryland &assa$*"setts &i$*i'an &innesota &ississippi &isso"ri &ontana Ne2ras6a Ne!ada New 0amps*ire New ?ersey New &e/i$o New Bor6 Nort* #arolina Nort* Da6ota O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o *ode +sland So"t* #arolina So"t* Da6ota -ennessee -e/as %ta* Vermont Vir'in +slands PEO F
AND
PE#S+,-#
C(ie" C$0.'") F
IS T-E
PEO u"+er S.eci'( C$"+i i$"#
F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F Appendi@ E I #age 46
S'e Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'
PEO F F F F
PEO u"+er S.eci'( C$"+i i$"#
C(ie" C$0.'") F
Appendi@ E I #age 47
APPENDIX %: %I%T*.T-!EE.STATE SU!"E*
.!al"ation of State +mplementation of Se$tion 3<3(6), So$ial Se$"rity A$t
SUTA /u0.i"g I0.(e0e" ' i$" Sur!e) S ' e $f BBBBBBBBBBBBBBBBBBB O .V+S.D D AF-P
#offey #omm"ni$ations, LL# 472< &ont'omery Lane, S"ite 1<5< 1et*esda, &aryland 2<914 (3<1) 9<7I<9<<
A"'"st 29, 2<<;
Appendi@ . I #age 4D
SUTA /UMPINC IMPLEMENTATION SU-VED

8'c%gr$u"+ '"+ Pur.$#e $f &e Sur!e): -*e S%-A D"mpin' @re!ention A$t of 2<<4 stip"lates t*at State %nemployment +ns"ran$e (%+) pro'rams monitor and penali>e employers t*at en'a'e in t*e pra$ti$e of S%-A d"mpin'8 Se$tion 3<3(6) of t*e So$ial Se$"rity A$t addresses S%-A d"mpin' and reG"ires t*e %8S8 Department of La2or to $ond"$t a st"dy of state implementation of t*is law and to pro!ide #on'ress wit* a report t*at s"mmari>es t*e findin's of t*e st"dy, no later t*an ?"ly 15, 2<<78 -o $omply wit* t*e reportin' reG"irements of t*is law, t*e %8S8 Department of La2or, .mployment and -rainin' Administration, $ontra$ted wit* #offey #omm"ni$ations, LL#, in $olla2oration wit* its s"2$ontra$tor, t*e %r2an +nstit"te, to $ond"$t t*e reG"ired st"dy8 -*is s"r!ey was desi'ned to $olle$t t*e data and ot*er ne$essary information to allow t*e Se$retary of La2or to f"lfill *er responsi2ilities "nder t*e law I"# ruc i$"# f$r C$0.(e i$": -*e atta$*ed s"r!ey is 2ein' sent to t*e A'en$y Administrators in ea$* state8 After $ompletin' t*e s"r!ey we reG"est t*at it 2e si'ned and ret"rned to #offey #omm"ni$ations at t*e address pro!ided on t*e $o!er pa'e of t*is s"r!ey8 +n addition, responses may 2e ret"rned 2y email (l$offeyQ$offey$om8$om) or 2y ret"rnin' t*e #D to t*e #offey #omm"ni$ations address8 Fo"r types of answers to s"r!ey G"estions are e/pe$tedK D"estions followed wit* hollow circle bullets *a!e m"ltiple $*oi$e answersFor t*ese, yo" may simply $*e$6 t*e $orre$t $*oi$e(s)8 D"estions wit* solid bullets list !ario"s aspe$ts or $ate'ories t*at reG"ire responses8 -a2les wit* empty $ells are to 2e filled in8 %nderlined spa$es *a!e 2een in$l"ded for yo" to pro!ide additional answers, $omments, e/planations, $itations of related do$"ments, et$8 -*ere is no spa$e limit for t*ese items8 S*o"ld it 2e ne$essary, yo" may atta$* related do$"ments or $"t and paste t*e related se$tions8
Some resear$* will 2e reG"ired in order to answer $ertain G"estions, and it is e/pe$ted t*at yo" will need to $ons"lt wit* staff and $ollea'"es in de!elopin' some answers8 3e reG"est t*at yo" answer all G"estions8 3*en yo" are not s"re a2o"t yo"r answer, please e/plain yo"r "n$ertainty8 +f yo" wo"ld li6e $larifi$ation re'ardin' a parti$"lar G"estion, please $onta$t &r8 ett 0ensley at r*ensleyQ$offey$om8$om, or 2y telep*one at (941) 755I93<48 /ue +' e f$r #ur!e) re#.$"#e# K -*irty days after re$eipt of t*e s"r!ey8
Appendi@ . I #age 48
EVALUATION OF T:E IMPLEMENTATION OF SECTION 303(%) OF T:E SOCIAL SECU-ITD ACT SUTA /UMPINC IMPLEMENTATION SU-VED
P'r A. Leg'( E(e0e" # A.5 #lease pro&ide the citation =)cite+> and effecti&e date of any *ule, policy, directi&e or procedure that has been issued as a result of the SUTA Dumping #re&ention Act of 633D#lease attach a copy or pro&ide an e@planation of each. A.6 *uleF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU #olicy, Directi&e or #rocedureF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
Did your state legislature enact any other la0 or regulations that you belie&e enhances your ability to pre&ent SUTA dumping, other than those reGuired by Section 737=->, SSA. 2 2 'es, please pro&ide citeF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 1o
P'r 8. O.er' i$"'( E(e0e" # B.5 The Employment and Training Administration =ETA> contracted 0ith the State of 1orth Carolina to de&elop the SUTA Dumping Detection System =SDDS>. !s your state utili:ing this system for the detection of SUTA dumpingN 'es, date it became operational UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 1o, describe the system being used and the date it became operational UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U B.6 State U! programs may use a &ariety of methods to detect SUTA dumping. #lease identify all methods used by your stateF 2 State(de&eloped automated SDDS system 1orth Carolina de&eloped automated SDDS system Agency Employee? i.e.F field auditor, e@aminer, etc.
Appendi@ . I #age 44
2 2 2 B.7
Complaints from other employers 2ther State U! Agencies 2ther State Agencies? i.e., *e&enue? Secretary of State 2ther sources =specify> UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
"hich of the preceding methods in Guestion B.6 are most effecti&e in your stateN 2 2 2 State(de&eloped automated SDDS system 1orth Carolina de&eloped automated SDDS system Agency Employee? i.e.F field auditor, e@aminer, etc Complaints from other employers 2ther State U! Agencies 2ther State Agencies? i.e., *e&enue? Secretary of State 2ther sources =specify> UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
CommentsFUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU B.D "hich of the methods identified in Guestion B.7 are most effecti&e in detecting pre&iously unreported successions or partial successionsN 2 2 2 State(de&eloped automated SDDS system 1orth Carolina de&eloped automated SDDS system Agency Employee? i.e.? field auditor, e@aminer, etc Complaints from other employers 2ther State U! Agencies 2ther State Agencies? i.e., *e&enue? Secretary of State 2ther sources =specify> UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
CommentsFUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U B.8 !s your state SDDS system effecti&e in detecting other types of ta@ rate manipulation acti&ities that are not specifically addressed in Section 737=->, SSAN 2 2 'es 1o
E@plainFUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU
Appendi@ . I #age 4A
B.4
"hat changes could be made to impro&e the detection system currently in useN UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U
Appendi@ . I #age 4C
B.A
,o0 many estimated state .ull Time EGui&alent =.TE> positions are currently being used in all acti&ities related to the detection, in&estigation and pre&ention of SUTA dumpingN #lease complete the follo0ing Table B.5 T',(e 8.1 Unit Liability and *egistration !n&estigation P Audit EnforcementHCollection Legal !nformation Tech !ntegrity Unit 2ther =Specify> /um-er of F!Es
"hat 0as the net addition to staff =.TEBs> de&oted to these acti&itiesN UUUUUUUUUUUUUUU B.C "ill your state ha&e ongoing costs for the detection and pre&ention of SUTA dumping beyond those described abo&e in B.A =.TEs>N !f so, please indicate the estimated amount. B.E Soft0are support UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU ,ard0are support UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU Training UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 2therUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU ,as your state participated in any training for staff on SUTA dumping la0, regulations, policies and procedures during 6338(6334N 'es 1o
!f yes, 0hich of the follo0ing units 0ere trained and for ho0 many hoursN #lease complete the follo0ing Table B.6 T',(e 8.* Unit Liability Audit Collection Legal Appeals U! !ntegrity 2ther =Specify>
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Appendi@ . I #age 4E
!rained 2es5/o
/um-er of 6ours
/um-er of Staff
B.53
!s additional training neededN !f yesF #lease identify the topics and personnel to be trained. 'es 1o
TopicsF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU #ersonnelF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 2 2 2 2 Any additional training needed should be conducted byF State personnel USD2L *egional office personnel USD2L 1ational office personnel "eb Based
P'r C: C$"gre##i$"'( E(e0e" # C.5 ,o0 satisfied is your agency 0ith the pro&isions of Section 737=->, SSAN %ery satisfied ;enerally satisfied 1ot really satisfied 0ith the pro&isions of the la0
#lease identify any specific area=s> of dissatisfactionF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU C.6 ,o0 satisfied is your agency 0ith the pro&isions of your state SUTA dumping la0N %ery satisfied ;enerally satisfied 1ot really satisfied 0ith the pro&isions of the la0
#lease identify any specific area=s> of dissatisfactionF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U
Appendi@ . I #age A3
C.7
Do you belie&e additional .ederal legislation should be enacted in order to further assist your state and others in pre&enting SUTA Dumping and similar schemesN 2 2 'es 1o
!f yes, please identify the additional actions you thin- Congress should ta-e to pre&ent SUTA dumpingF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U C.D "hat barriers to enforcing your state SUTA dumping la0 ha&e you encounteredN Checall that apply .inancialHStaffing Legal #rocedural Access to !T !nterest ;roup 2pposition 2ther =specify> UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
E@plainUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU C.8 "hich of those in Guestion C.D has been the greatest barrierN 2 C.4 .inancialHStaffing Legal #rocedural Access to !T !nterest ;roup 2pposition 2ther =specify> UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
"hich sta-eholders has your state ta-en special efforts to inform about SUTA dumping legislation and enforcement acti&ityN Chec- all that applyF 2 2 2 All Employers State Legislature State U! Ad&isory Council Business organi:ations Labor organi:ations Ta@payer foundations Accounting professionals Bar Associations
U! Ad&isory Companies Third #arty #ayroll Ser&ices #rofessional Employer 2rgani:ations =#E2> Associations Construction !ndustry Accommodation and .ood Ser&ices 2ther =specify>
CommentsFUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU C.A 2&erall, has the passage and initial implementation of your ne0 SUTA dumping la0 had any une@pectedHunintended conseGuences for your state U! operationN 1o, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 'es, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU C.C !s the en&ironment for detection, in&estigation and pre&ention of SUTA dumping =ta@ manipulation acti&ities> different today &ersus the situation prior to the enactment of the .ederal SUTA Dumping #re&ention Act of 633DN 2. 2. C.E 'es, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 1o, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
Do you belie&e SUTA Dumping detection and enforcement has been a producti&e and 0orth0hile in&estment of resources for your stateN 'es, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU 1o, e@plainF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU
P'r /. E(e0e" # -e(' e+ $ Pr$fe##i$"'( E0.($)er Org'"i2' i$"# (PEO#)@E0.($)ee Le'#i"g D.5 2ne function of #E2s is to pro&ide labor ser&ices to employers through an employee leasing arrangement 0herein they hire all or some of the e@isting employees of a firm and then lease the employees bac- to the firm, no0 a client firm of the #E2. !n addition to registering for an unemployment account number, are #E2s reGuired to register else0here =the Department of *e&enue or some other agency of state go&ernment> as a condition of doing business in the stateN 2 !f yesF
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Appendi@ . I #age A6
'es 1o
"hat is the name of the other AgencyF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU #lease list the regulatory reGuirements of the other AgencyF UUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU D.6 D.7 ,o0 many Employee LeasingH#E2 companies are currently acti&e employers in your stateN UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU "hich industries in your state commonly use the ser&ices of Employee LeasingH#E2 firms in your stateN #lease list only the top fi&e in si:e in the follo0ing table D.5. T',(e /.1 1ndustrial Sector ,ealth Care and Social Assistance Construction *eal Estate Accommodation and .ood Ser&ices anufacturing 2thers =Specify> D.D Does your state recogni:e by la0, regulation, or policy, the #E2 as the )employer+ of record for e@perience rating purposes and reGuire the )#E2+ to pay U! ta@es based on its o0n e@perience under its o0n account numberN 2 'es 1o /um-er of Client Companies !otal Employees "eased
!f yes, please pro&ide cite or e@plain policyF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U D.8 !f the ans0er to Guestion D.D is yes, does your state close the )client company+ account 0hen the #E2 and the client company enter into a contractual relationship and all employees of the client are mo&ed to the #E2N D.4 'es 1o
Does your state recogni:e by la0, regulation, or policy, the )client company+ as the employer and reGuire the )client+ to pay U! ta@es based on its o0n e@perience under its o0n account numberN
'es 1o
!f yes, please pro&ide the cite or e@plain the policyF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U D.A Does your state consider the client company and the #E2 to be )$ointly liable+N 2 2 'es 1o
E@plain the state position on $oint liabilityF UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU D.C Does your state reGuire by la0, regulation, or policy, the transfer of e@perience from a client firm to the #E2 0hen clients enter into a contractual relationship 0ith the #E2N 'es 1o
E@plain the stateBs policy on this and ho0 it is accomplishedF UUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU U D.E Does your state reGuire e@perience attributable to the client to be transferred from the #E2 to the client 0hen the contract endsN 2 2 'es 1o !f yes, please e@plain the stateBs policy on this and ho0 it is accomplishedF UUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU !f no, please e@plain ho0 the client is rated after the contract ends =i.e., ne0 employer rate, re&ersions of pre&iously assigned rate>F UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU UU
P'r E. /' ' E(e0e" #
Appendi@ . I #age AD
E.5
"hat is the total number of potential SUTA dumping cases that ha&e been identified in your state and are being in&estigated since the passage of your SUTA dumping legislationN #lease complete Table E.5
T',(e E.1 !ime Period /uly to September 6338 2ctober to December 6338 /anuary to arch 6334 April to /une 6334 /uly to September 6334 E.6 ,o0 many of the in&estigated cases ha&e been determined to ha&e &iolated the )mandatory+ transfer of e@perience pro&isions of state la0 in the follo0ing industry sectorsN =The mandatory transfer pro&ision refers to instances 0here employers transfer either all, or a portion of their business to another employer and both employers, at the time of transfer, 0ere under substantially =or any> common o0nership, management, or control.> #lease complete Table E.6. T',(e E.* 1ndustrial Sector Construction =1A!CS Codes 674, 67A, 67C> Employee Leasing =1A!CS Code 84577> ,ospitality =1A!CS Code A65> 2ther =1A!CS CodeUUUUUUU> E.7 ,o0 many of the in&estigated cases ha&e been determined to ha&e &iolated the )prohibited+ transfer of e@perience pro&isions of state la0 in the follo0ing industry sectorsN =The prohibited transfer pro&ision refers to instances 0hen a person 0ho is not
/um-er 1dentified
/um-er 1n#estigated
/um-er of Cases
an employer acGuires a business solely or primarily for the purpose of obtaining a lo0er rate of contributions.> #lease complete Table E.7
T',(e E.3 1ndustrial Sector Construction =1A!CS Codes 674, 67A, 67C> Employee Leasing =1A!CS Code 84577> ,ospitality =1A!CS Code A65> 2ther =1A!CS CodeUUUUUUU> E.D "hat is the total amount of additional contributions due from all cases of SUTA dumping detected in your state since your state la0 changed, bro-en do0n by type of penalty 0ith respect to )mandatory+ and )prohibited+ transfer casesN #lease complete Table E.D. T',(e E.7 !ype of Penalty Additional Ta@es Due .ines 2ther #enalties !nterest #ayment 2f the abo&e amounts, ho0 much has been reco&eredN #lease complete Table E.8 T',(e E.4 !ype of Penalty Mandatory Prohi-ited 7uarter5year
/um-er of Cases
Mandatory !ransfers
Prohi-ited !ransfers
7uarter5year o$ed
!ransfers Additional Ta@es Due .ines 2ther #enalties !nterest #ayment
!ransfers
collected
E.8
,as your state disco&ered that an )ad&isor+ 0as in&ol&ed in helping to create the SUTA dumping arrangementN =An ad&isor, as used here, is a person 0ho -no0ingly ad&ises another person to &iolate pro&isions of state la0 that relate to SUTA dumping.> 'es 1o ,o0 many instancesN UUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUU "hat is the total amount of penalties in&o-edN UUUUUUUUUUUUUUUUUUUUUU
E.4
!n 0hich Guarter of the year ha&e SUTA dumping acti&ities been the most pre&alent in your stateN .irst Luarter =/anuary, .ebruary and arch> Second Luarter =April, ay and /une> Third Luarter =/uly, August and September> .ourth Luarter =2ctober, 1o&ember and December>
.87
3*at *as 2een t*e stateHs initial e/perien$e of appellate 2odies "p*oldin' t*e state %# a'en$y determination t*at entities *a!e en'a'ed in S%-A d"mpin'R @lease $omplete -a2le .8; T',(e E.1
Category Lo0er Le&el Appeals ,igher Le&el Appeals Appeals to Court 2ther
/um-er of Cases
Cases Upheld
Cases Re#ersed
EEE T&'"% D$u f$r c$0.(e i"g &i# #ur!e). EEE BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
E&aluation of State !mplementation of Section 737=->, SSA I .inal *eport Coffey Communications, LLC and Urban !nstitute Appendi@ . I #age AA
P(e'#e .r$!i+e &e "'0e, .&$"e "u0,er '"+ e0'i( '++re## $f &e .er#$"(#) c$0.(e i"g &e #ur!e):
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APPENDIX
A #E2 AS2 A"A*E CU!C DBA DES DUA EDD ESD ETA .ACD .A#E2 .TE .UTA ;A2 !*S !T !TSC L ! 1A!CS 1A#E2 1AS"A 2 B #E2 SDDS SSA SUTA S"A TDL* T"C UC U! U!A U!#L USD2L
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Appendi@ ; I #age AE

Final 4-09-2008

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EVALUATION OF STATE IMPLEMENTATION OF SECTION 303(K), SSA FINAL REPORT

Coffey Communications, LLC Bethesda, aryland Authors:

Urban !nstitute "ashington, D.C.

E@ecuti&e Summary I #age i&

C;APTER !" INTROD5CTION AND BACKGRO5ND

Section 737=->=5>=B>, SSA. Section 737=->=5>=D>, SSA. Chapter 5 I #age 4

Figure 1.*: Nee+ f$r A++i i$"'( Fe+er'( Legi#(' i$"

C;APTER (" STATE AGENC: ENFORCEMENT*STR5CT5RE AND RESO5RCES

C;APTER ," E9AL5ATION OF IMPLEMENTATION STRATEGIES

There 0ere 6D such states as sho0n in Appendi@ B(5. Chapter 7 I #age 63

Me &$+# $ /e ec SUTA /u0.i"g

O &er S ' e Age"cie#

P$ e" i'( I+e" ifie+ I"!e# ig' e+

C$"# ruc i$", 111

E0 .($)ee Le'#i"g, 77 O &er, 3*0 :$#.i '(i ), 37

M'"+' $r) Tr'"#fer C'#e# Pr$&i,i e+ Tr'"#fer C'#e#

9u'r er() Se'#$"'(i ) -ec$g"i2e+ ,) S ' e#

Figure 3.3: Perce" 'ge $f S ' e# <i & A+!i#$r# /i#c$!ere+

Advisors Discovered States

No Advisor Discovered States

A0$u" /e er0i"e+ i" = Mi((i$" A0$u" C$((ec e+ i" = Mi((i$"

C +NA is information not a!aila2le8

S'e #alifornia Florida &i$*i'an New 0amps*ire -e/as %ta* 3as*in'ton

C;APTER 3" FINDINGS AND CONCL5SIONS

APPENDIX A: SUTA DUMPIN

e#%ix B7!" Le'i+-ati$#

e#%ix B7(" Pe#a-ty Le'i+-ati$#

Ci!i( Pe"'( ie# (A)Ja(+)(f)(1)(1)

Cri0i"'( Pe"'( ie#

K"$<i"g() Vi$(' e+ L'<

e#%ix B7," Mi+ce--a#e$u+ Le'i+-ative Pr$vi+i$#+

S'e O*io O6la*oma Ore'on @ennsyl!ania @"erto i$o

APPENDIX $: SUTA DUMPIN

T).e $f /e ec i$" S)# e0 O &er ONI@oint A3A . System

.SD 3a'e Lin6 Dete$tion System

FLAS%DDS &AN%AL N AA.N#B 3= D"ery 1ased 7I2<<5

State #"stomi>ed ONI@oint A3A .

Data2ase D"ery in$l"ded in %+ redesi'n

NB SDDS Appendi@ C I #age 8C

T).e $f /e ec i$" S)# e0 O &er

Ora$le data2ase sear$* en'ine

F (limitedI li$ensin' iss"e) F F F F F F (@ilot State) F F (s"pplemented 2y state system) F

Nu0,er $f S 'ff Tr'i"e+ $" SUTA /u0.i"g

Nu0,er $f S 'ff Tr'i"e+ $" SUTA /u0.i"g

T'A 32 153 45 9 372 2 23 4 ;< 152 3<< 1< 14 2 1 41 3 ;2 21

C #alifornia trained 3<4 staff5 "na2le to separate o"t 2y a$ti!ity8

APPENDIX E: UI EXPE!IEN$E !ATIN EMP)#*E! #% !E$#!D

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S'e Vir'inia 3as*in'ton 3est Vir'inia 3is$onsin 3yomin'

PEO u"+er S.eci'( C$"+i i$"#

APPENDIX %: %I%T*.T-!EE.STATE SU!"E*

.!al"ation of State +mplementation of Se$tion 3<3(6), So$ial Se$"rity A$t

A"'"st 29, 2<<;

SUTA /UMPINC IMPLEMENTATION SU-VED

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S'e #alifornia Florida &i$i'an New 0ampsire -e/as %ta* 3as*in'ton

S'e Oio O6laoma Ore'on @ennsyl!ania @"erto i$o

APPENDIX %: %I%T.T-!EE.STATE SU!"E