September and January are two important months for Texas businesses in terms of unemployment insurance taxes.

Back in June, the governor of the Lone Star State, Greg Abbot, signed a bill that will offer tax credits to professional employer organizations, while bumping up rates slightly for other businesses in the state. That legislation is set to take effect September 1, and employers will begin seeing changes starting in January, according to a Texas Tribune reminder regarding House Bill 3150. Essentially, the legislation is designed to eliminate so-called “double taxation” for these PEOs, though there is more at play than just tax relief.

When a company hires one of these organizations, it will transfer its employees, their health and retirement plans and payroll to the PEO. The arrangement makes the individuals employees of the PEO, according to both state and federal records. Along with payroll and benefits, UI tax responsibilities are also transferred to the human resource management organizations.

​How are PEOs being double-taxed?
PEOs typically already have a lower tax rate than other businesses – though they absorb companies’ employees, they do not take on their unemployment history, which keeps their tax rates subdued relative to other employers, the Texas Tribune explained. However, sometimes these organizations are double-taxed depending on when a business and PEO enter into agreement. Under current law, companies pay taxes on the first $9,000 of their employees wages, but when a PEO and business enter into agreement, everything restarts. PEOs, from the outset of the transfer, have to pay taxes on the first $9,000 of individuals’ wages as if they were new hires, even if the company that previously employed them had already covered much of that.

However, under House Bill 3150, this form of double taxation will be eliminated, a change which will cost the Unemployment Compensation Fund $84 million, according to the news outlet. PEOs will be able to claim credit on UI taxes already paid by the businesses that previously employed individuals who are transferred to the organizations via agreements.

At the time of the signing, The National Association of Professional Employer Organizations lauded the bill.

“We thank Gov. Abbott for his support of this bill, which will enable PEOs to continue to help small businesses in Texas grow and thrive while eliminating what was essentially a double tax on small business and maintaining the integrity of the UI trust fund at the same time,” Pat Cleary, NAPEO president and CEO, said in a press release. “PEOs provide valuable services to the small business community and play a role in the creation of Texas jobs, so enactment of this legislation was critical to the continued strength of the small business sector in the state.”

Opposition to House Bill 3150
However, not all business in Texas are as pleased with the legislation as the state’s PEOs are. This is because, though these organizations will likely see their UI taxes decrease in 2016, other employers across the state will see their own rates go up to compensate for the $84 million the bill will cost the Texas UI trust fund. The Texas Workforce Commission has projected that UI tax rate for businesses other than PEOs will increase about 0.01 percent, or around $1 per employee, over the next five years, according to the Texas Tribune.

This has led to employers who will see their tax rates go up speaking out against the bill. Critics of the legislation have called it a “special interest bill,” according to a report from the Texas Tribune published around the time Gov. Abbot signed it. Even some PEO executives are unsure of the bill is as beneficial as it has been touted to be. Todd Cohn, vice president of regulatory affairs for TriNet, is one of those people. His California-based company is one of the top PEOs doing business in Texas.

“No other state in the entire country does this, and they don’t do it for good reason – because they recognize that there is a significant impact to their own UI trust fund, and if they did this they’d be passing on those costs,” he explained to the news outlet earlier this summer.

Employers in Texas will soon have to prepare to see their UI tax rates go up to compensate for PEOs’ forthcoming tax credits. Come 2016, they’ll be covering the $84 million UI trust fund deficit created by House Bill 3150.

At Corporate Cost Control, we work closely with employers across the country to better manage the nuances of unemployment insurance. Legislation changes on the state level could impact you today, and we welcome any questions or concerns you may have on a wide range of topics.


Contact CCC to see how we can save your organization time and money.
Contact our Sales Team
(800) 207-6926

Featured Videos

View All Videos

Latest News

Close

Sales

    Your Name:*

    Title:

    Company Name:*

    Company Address:

    Company City:

    Company State:

    Company Zip:

    Number of Employees:

    Your Email:*

    Phone Number:*

    Fax Number:

    Check the boxes below if you wish to receive information on any of the following:

    Unemployment Cost ControlTax Credits & Incentives (WOTC)Employment / Wage Verification

    Your Message:

    Employment & Income Verfication

      Your Name:*

      Title:

      Company Name:*

      Company Address:

      Company City:

      Company State:

      Company Zip:

      Number of Employees:

      Your Email:*

      Phone Number:*

      Fax Number:

      Your Message: