NC Budget and Tax Center

January 1 marks new unemployment insurance financing system

While much of the focus of unemployment insurance changes made last session has been on the negative impact it will have on workers who have lost their job through no fault of their own (and for good reason), relatively little has been written about the financing changes that impact employers.

This is an important piece of the story.  Employers have always paid unemployment insurance taxes on covered employees as the source of funds for the unemployment insurance system. North Carolina’s average employer contribution prior to HB4 ranked the state 30th for its low level. And yet, policymakers undertook very few changes to the way in which employers will pay into the unemployment insurance system moving forward putting the system at potential risk when another downturn happens.

Among the changes that went into effect on January 1 are:UI Employer Contribution Estimates

  • The elimination of a zero tax for approximately 24,000 employers so that everyone is paying into the system. Ensuring all employers paid in was a good change.
  • The increase in the maximum rate to 5.76 percent will be insufficient to address the long-term solvency challenges of the system and results in roughly an additional $15 per employee in taxes.
  • Finally, the adoption of a formula approach rather than tax schedules will mean that some employers will pay a lower tax rate than under prior law despite being similarly situated. Small changes in their number of employees could also drive significant changes in their tax levels.

Bottom line is that the combined impact of tax and benefit changes will mean employers will pay far less than they would have under the previous system.  And there were better choices available.

5 Comments

  1. LayintheSmakDown

    January 2, 2014 at 6:26 pm

    The good thing is we have paid a good portion back to the US and are starting to show great gains from ending the constant extensions. Funny how the gains begin almost the month after the benefits dropped.

    http://www.washingtonpost.com/blogs/govbeat/wp/2013/12/27/the-nine-states-and-one-district-that-won-2013/

  2. Alan

    January 3, 2014 at 6:56 am

    Yeah, “great gains”… unless of course you’re unlucky enough to find yourself unemployed in this state.

    More Civitas funded obfuscation…

  3. LayintheSmakDown

    January 3, 2014 at 9:24 pm

    Actually with fewer and fewer people unemployed (assuming the Obama economy does not tank even more) there will be less and less of a need. When that happens the feds can be paid back and the fund built up for the next recesssion. See that is how fiscal responsibility works…but I would not expect a policywatch hack to understand.

  4. Lucinda

    January 4, 2014 at 12:48 am

    Do you know what’s really odd about this? While the unemployment rate went down, so did the employment rate.

    November 2012: Unemployment Rate = 9.4. Employment Rate = 57.3
    November 2013: Unemployment Rate = 7.4. Employment Rate = 56.8

    Apparently one can be employed and unemployed at the same time. Does that mean I can have tea and not tea together?

    Reference: http://www.bls.gov/lau/ststdsadata.txt

  5. Alan

    January 5, 2014 at 8:42 am

    Wow, great GOP economic planning, lets save up for the next recession we cause (we being the GOP). Somehow, I’m sure most economists wouldn’t agree with your “fiscal planning”.

    The “Obama economy” as you describe it, was actually the Bush economy. You may recall(or maybe don’t want to), that the Great Recession started under a Republican government, and the current administration has had to deal with what they inherited. No thanks to the GOP then, and certainly no thanks to them now, as their only “policy” has been to obstruct everything & anything they can. Yes, even things they used to support.