The Office Grapevine - Virtual Assistance in Chicago, Illinois

Thursday, March 12, 2009

Big costs to your firm hidden in the stimulus in two expensive acronyms: SBP v. ABP

More valuable information from AIPB (American Institute of Professional Bookkeepers).

It was unintended, but in helping unemployeds, the stimulus ended up adding new payroll costs. Here's one buried cost:

Currently, most states use a standard base period (SBP) to determine eligibility for unemployment benefits. Under the new law, one-third of the federal incentive funding (available through federal fiscal year-end 2011) for state benefits is available to states that use - or agree to use - the alternate base period (ABP). The remaining two-thirds of the incentive goest to states that have or will have at least 2 of 4 other provisions.

The current system: SBP. The SBP is the first 4 of the last 5 completed calendar quarters (in Massachusetts, the last 4 completed calendar quarters). Every state requires that an employee earn a certain amount in wages over a certain period, generally, 1 year (4 calendar quarters), to qualify for unemployment payments.

Case Example: Your former employee Joe files a claim for unemployment benefits in February 2009 (1st q. 2009). Your state's SBP runs from 4th q. of 2007 through the 3rd q. of 2008. Thus, 4th q. 2008 (the "lag" quarter) and 1st q. 2009 are not used in the eligibility calculation.

The new system: ABP. There are incentives for states to use ABP, under which the last 4 completed calendar quarters determine eligibility for benefits. The base period for an employee terminating in February 2009 is the 4 quarters of 2008. But when the last 4 completed calendar quarters determine eligibility, claimants' most recent paid work history is included, substantially increasing the likelihood of qualifying for benefits and receiving higher payment amounts.

Bottom line: If - more likely, when - your state adopts the ABP, your company's SUI account will be charged for more unemployment payments and your SUI rate could rise in response to more charges to your account.

The administrative burden: When your state adopts the ABP, it will need your last calendar quarter wage reports much sooner to determine claimants' eligibility. For example, say that you now file 4th q. unemployment wage reports by Jan. 31. If your state adopts the ABP, it will need this data immediately. Thus, instead of using your filings to evaluate claimant eligibility, it may start asking you for data on former employees before you file. This can be time consuming.

Alternative: States adopting the ABP can accelerate due dates for wage reports and/or mandate electronic reporting - e.g., a state might require quarterly wage detail by the 15th of the month following the quarter - or set lower thresholds, such as only 25 employees - before you must report electronically. Faster wage report filing puts time pressure on employers, particularly multi-state employers.

Be certain to discuss your obligations with either your accountant or payroll company.