February 12, 2015
After the stock market crash in October 1929 and the subsequent Great Depression of the 1930’s, the national unemployment rate exceeded 25%. Simultaneously, throughout the world, industrialized nations began creating systems of insurance to support and compensate workers for wages lost during periods of unemployment. Nearly all of these nationalized systems became compulsory as each government enforced the coverage using laws, regulations and taxing powers to fund the growing financial liability.
The primary purpose of unemployment insurance is to deliver economic assistance and compensation to employees for wages lost during periods of economic decline and/or periods of involuntary unemployment. A secondary purpose, and one most relevant during the years that followed the Great Depression, is to keep the trained labor force in one location from dispersing to other locations where jobs are more plentiful.
The structure of unemployment compensation in the United States is a federal (FUTA, aka Federal Unemployment Tax Administration) and state (SUI, or state unemployment insurance, aka SUTA, State Unemployment Tax Administration) partnership that obligated states to comply with laws that occurred as a result of the Social Security Act of 1935. While the Act imposed a FUTA tax on all employers, a credit against federal taxes was provided if they paid state taxes to states with unemployment laws that met FUTA requirements and had solvent Unemployment Trust Funds. For example, employers in Massachusetts, Oregon and Tennessee were charged a 2014 FUTA tax rate of 0.6%, since their state unemployment agencies all have solvent Unemployment Trust Funds and meet FUTA requirements. Employers in Kentucky, North Carolina and Ohio had 2014 FUTA rate of 1.8%, since their Unemployment Trust Funds are insolvent and are therefore not eligible for a credit.
The Act gave states the autonomy to determine their preferred mechanisms of their own SUI programs. Consequently, the 50 state SUI programs and taxing procedures are all quite different and have contrasting impacts on employers. In the USA, as a matter of perspective, in 2014, the estimated 50 state average employer tax contribution as a percentage of gross wages ranges from a low of 0.36% (South Dakota) to a high of 1.71% (Washington), with a national average of 0.82%. Consequently, an employer with a $2,000,000 payroll would have a tax cost of as low as $7,200 in South Dakota and as high as $34,200 in Washington.
Source: First Nonprofit Group’s “Financial Mechanics of Funding SUTA” series
Next article: “Unemployment Insurance Is Not Really Insurance”
NYCON members who use First Nonprofit’s programs enjoy enduring savings and improved efficiency. Our association knows that success, because from the beginning, we achieved the same great benefits. Great savings, seamless technology, and responsive service. NYCON highly recommends First Nonprofit’s remarkable unemployment solutions.
We were introduced to First Nonprofit through another housing authority. In our analysis and comparison to what we were paying the State, our first year savings was $5,800 plus. We have been with them since the end of 2008 and I am glad we have been. I consider them an arm of our HR department.
Because INCS advocates for the operating conditions that allow charter public schools to provide high quality public education, partnering with First Nonprofit was an easy decision. First Nonprofit’s unemployment programs provide our member schools two operating elements crucial to their ability to provide high quality public education: savings and budget certainty. Capable, committed teachers are the key to student success. By participating in the unemployment insurance savings plan, charter public schools gain peace of mind and are able to invest more money in their teachers.
Throughout our membership in the Unemployment Savings Program, First Nonprofit understood our demands, community dynamics, and the importance of seamless services; that allowed us to serve our constituents better.