As Obamacare begins to be implemented many employers are taking steps to protect themselves from the additional costs that are anticipated. Most studies show that with the implementation of Obamacare, employers are expected to spend an additional $3,000.00 (1) per full time employee, in additional healthcare costs. Many employers are taking steps to reduce full-time employees to part-time status, typically from 40 hours to under 30 hours per week, to avoid this addition expense. While this seems to be a simple solution, employers should consider the potential additional unemployment tax expense that can occur as a result of this type of decision.

There are two outcomes that can occur as a result of reducing an employee’s hours that will have an effect on the employer’s unemployment tax rate(s). The first occurs when an employee’s hours are reduced to less than 40 hours per week and the employee becomes eligible to file for partial or reduced unemployment benefits. This provision is available in all 50 states. When an employee is determined to be in a status of partial unemployment for any week in which they earn less than their regular unemployment benefit amount (roughly ½ of their average weekly wage). They can then collect the difference between what they earned in that week and what they would have received in regular unemployment benefits.

The impact on the employer’s tax rate will likely be minimal in a case where the employee continues to work and files a partial claim. But, the size of the employer’s workforce and how many people file for partial benefits will determine exactly how much tax exposure they may have.

The second scenario employers should consider is, if an employee quits their job due to a reduction in hours, they could file a claim and collect full unemployment benefits. In a majority of states a reduction in pay, earnings and duties of 10% or more can be good cause for quitting your employment. Some states currently require the employee to take steps to allow the employer to improve the situation prior to quitting, some do not.

With employers looking at reducing employee’s hours to avoid the costs of Obamacare, state agencies are beginning to redefine the laws affecting a substantial change in the employees working conditions. The first state to make a dramatic change is Minnesota. A recent decision by the Minnesota Court of Appeals granted unemployment benefits to a former employee due to reduced hours and specifically indicated in the instance of an employer substantially reducing hours, there is no requirement to file a complaint prior to giving a resignation. (see: ¶15,807 Shouna Thao v. Command Center, Inc., (Nov. 29, 2012)).

While Minnesota is the first state to make collecting benefits easier for a former employee after a reduction in hours; it is important to remember that in a majority of states, even if an employee is required to file a complaint- unless you increase hours, the eminent separation will be seen as good cause and the charges will affect the employer’s tax rate.

But how much does that claim add up to really?

While the above graphic shows what one claim can cost, it is important to note that the charges received will affect an employer’s tax rate for several years. Most states have a 3 to 4 year period that determines the tax rate. Just one bad year can move an employer into a substantially higher tax rate until that year is not used in the tax rate calculation.

In determining how to minimize costs to maximize profits, it is essential for employers to review all costs that may be affected by a decision. Unemployment is often a tax that is the last to be considered, but often can have a dramatic effect on an employer’s bottom line. For more detailed information please contact your CCC Account Executive.

(1) David Gamage: Obamacare’s Cost to the Working Class, Wall Street Journal 10/30/2012


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