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Fall 2014 Issue
Under the Dome: A Legislative Update for ORA
Ohio’s unemployment compensation fund
has been in debt to the federal government
for years. During the recession, payouts
to beneficiaries exceeded revenue from
employer taxes.
This is not a new problem, nor was it
unexpected. A special panel of business
and labor leaders met unsuccessfully for
years to try to work out a compromise to
put Ohio’s system in balance.
Speaker of the Ohio House of
Representatives Bill Batchelder appointed
a study committee to identify possible
solutions and to offer legislation to
address the financial imbalance. State
Representative Barbara Sears (R)-Sylvania,
chairs the panel, which heard testimony
this summer from interested parties in five
cities around the state.
Since it now appears that the 131st
General Assembly (which convenes
next January) may finally address this
complicated program, the Ohio Restaurant
Association decided to provide members
with some insight into the issues and to
begin considering how various “reforms”
might impact our members.
Unemployment Compensation 101
Under Ohio law, UC is available only to
unemployed workers who lose their jobs
through no fault of their own, who are
able and available to work, and who are
actively seeking work. To be eligible, an
unemployed worker must have earned a
maximum weekly amount for at least 20
weeks. In 2014, that amount is $233.
Each UC case is unique. Two employees
laid off at the same time from the same
company could have different outcomes
based upon their work history, earnings
history and number of dependents.
UC is financed solely by employers.
Employers pay a federal tax (FUTA) to
cover the program’s administration and a
state tax (SUTA) to pay benefits.
Maximum weekly benefit amounts are
indexed to average weekly wages. However,
the employer tax is not indexed. Since
1995, employers have paid SUTA taxes
quarterly based on a rate applied to the
first $9,000 of wages.
Thus, as the number of claimants rose
during the recession, revenue from the
employer tax did not keep pace. Ohio was
forced to borrow a total of $3.4 billion
from the federal government to meet the
shortfall and pay claimants. That balance
has been paid down to $1.38 billion.
How We Compare to other States:
• Ohio ranks 45
th
in the percentage of unemployed
who receive UC benefits. Only about 1 in 5 who
could receive benefits actually apply.
• Our state’s employers’ tax rate is .64 percent,
lower than the national average of .86 percent.
• Ohio’s maximum $564 weekly benefit for an
individual with three or more dependents ranks 11
th
and our $331 average weekly benefit ranks 17
th
.
FUTA
Employers pay a 6 percent annual FUTA
tax on the first $7,000 earned by each
covered employee. Historically, the federal
government has given employers a 5.4
percent credit, so their effective FUTA
tax rate has been .6 percent. However,
that credit is reduced .3 percent for every
year the state owes money to the federal
government for its revenue shortfall.
The revenue generated by the credit
reduction is used to pay down the state’s
borrowing balance.
The .3 percent credit reduction equates to
$21 per employee per year. Ohio has been
in debt to the federal government for three
years, so the credit reduction for 2013
is .9 percent, or $63 per employee per
year. For 2014, employers will pay $84
per employee.
SUTA
There are three components to an employer’s UC rate:
1. The base rate is the largest portion of the tax
and is based on an employer’s experience rating.
Rates range from .1 to 6.5 percent.
2. The mutualized rate is a flat rate used to cover
benefits that cannot be assigned to a specific
employer. The most recent mutualized rate is
.4 percent.
3. The minimum safe level tax is levied whenever
the balance in the trust fund falls below a certain
level. The tax rate ranges from .2 to 2.2 percent
based on an employer’s experience rating.
How to Reform the System
Ohio must repay a significant debt to Uncle
Sam. And even when that debt is repaid,
our system will not have the reserves
necessary to pay benefits during the next,
inevitable economic downturn.
As Director Dungey told House panel
members, “At the end of the day, there
are two ways to achieve solvency; increase
revenues and/or decrease expenditures.”
She identified several “solutions” that
other states have implemented to create a
structural balance between employer taxes
and claimant benefits.
• Increase revenue: inflate the tax schedules,
raise or remove maximum tax rates, raise
minimum rates, impose a surtax.
• Decrease expenses: reduce benefit levels, add
waiting weeks before benefits may be received,
and tighten criteria to qualify for benefits,
reduce the maximum number of weeks that
benefits may be collected.
Unemployment Compensation
Will the General Assembly Finally Tackle Reform?
