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may find itself saddled with a very high state unemployment contribution rate in the upcoming year The acquirer can avoid this problem by purchasing the assets of the acquiree, rather than the entire business entity, thereby eliminating the acquiree s poor experience rating as tracked by the state unemployment agency The taxable wage base used by states is required by federal law to be at least as much as the federal level, which is currently set at $7,000 Exhibit 115 shows the employer tax rates, employee tax rates (where rarely applicable), taxable wage limits, and coverages for all 50 states, plus the District of Columbia and Puerto Rico There is also a column covering the new employer tax rate, which lists the default tax rate given to any company that does not yet have an experience rating This default rate can change in some cases (see Note 1 to the exhibit), depending upon the industry in which a new organization is based; industries with historically high employee turnover rates deplete the state unemployment funds more rapidly, so companies operating in those industries are assigned a higher contribution rate When a person s employment is terminated, he or she goes to the local state unemployment office and applies for unemployment benefits The state agency then sends a form to the company, asking it to verify basic information about the former employee, such as the amount of hourly pay at the time of termination and the amount and composition of the severance payment After verification, the state sends the employer another form, notifying it of the maximum amount of unemployment benefits that can be paid to the employee (which can be greatly reduced if the employee finds work soon) A key issue in this process is whether an employee was terminated for cause (such as theft), was laid off, or voluntarily resigned Unemployment benefits are not paid when a person quits or is terminated for cause, so be sure to contest employee benefit claims if either case was the cause for termination Proper documentation of the termination is crucial to this determination, which is made by an employee of the state division of employment If determination is made in favor of the former employee, then any benefits paid will be charged against the company, which will impact its experience rating and therefore increase the amount of its contribution rate in the following year States have a preference for defining contractors as employees, since an employer can then be required to pay unemployment taxes based on the pay of these individuals To determine the status of an employee under a state unemployment insurance program, one can use some portion or all of the ABC Test, which means that a person is a contractor only if: There is an Absence of control by the company, Business conducted by the employee is substantially different from that of the company, or is conducted away from its premises, and The person Customarily works independently from the company as a separate business Twenty-six states use all three of these tests in determining the status of an employee or contractor, while eight use just the first and third tests.



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