Do you know whether you are a reimbursing employer for purposes of the Texas Unemployment Compensation Act (TUCA)? It pays to know the difference in light of some changes in the law enacted during the last session.
Texas law allows only certain types of employers to be treated as reimbursing employers, and school districts are included. A school district that has elected to be a reimbursing employer pays reimbursements of UI benefits, rather than unemployment taxes.
A reimbursing employer is required to report wages for employees. If unemployment benefits are paid to former employees, the district is billed quarterly for the amount of the benefits paid. If no unemployment benefits are paid to former employees, the district pays nothing. That has long been considered the primary advantage of reimbursing status. In addition, the Texas Workforce Commission (TWC), which administers the TUCA, also has pointed out that, even if some benefits are paid, the amount of reimbursements to be paid over a period of time may be less costly than payment of the tax for the same period. Recently, however, another advantage has emerged. Specifically, the legislature passed HB 3373 last session. That legislation provides that reimbursing employers who are not the claimant’s last employer are not charged for Unemployment Insurance (UI) benefits paid to claimants who left their employment due to misconduct connected with the work or voluntarily left without good cause connected with the work. In comparison, taxed employers who are not the claimant’s last employer do not have the ability to lower their chargebacks based on the same reasons.
So, as a reimbursing employer, you may encounter a couple of scenarios. First, if you are the claimant’s last employer on a claim, and the employee separated because of misconduct or quit without good cause connected with the work, you may be exempt from paying reimbursements for benefits paid. In that situation TWC will send you an Employer Notice of Unemployment Claim. If you respond timely to that notice, TWC will send you a decision that advises whether you will be billed for any benefits paid. If you disagree with the decision, you can file an appeal.
The second scenario is if you are not the claimant’s last employer, and TWC used wages from your district to calculate and pay benefits. In that situation, TWC will send you a Wage Verification Notice. If the employee separated because of misconduct or quit without good cause connected with the employee’s work for the district, you can file an appeal to the reimbursements. The wage verification notice includes the instructions to file an appeal.
This article has focused on the advantages of being a reimbursing employer and procedures to follow. It is important to keep in mind, though, that there can be downsides to that election. According to the TWC, the following are disadvantages:
• To elect to become a reimbursing employer is comparable to making a decision not to carry auto insurance. One’s liability may be much greater.
• A taxed employer normally knows in January of each year their tax rate for the calendar year whereas a reimbursing employer never knows their potential liability and may be required to pay reimbursements more than two years after the individual has been separated from their employment.
• A reimbursing employer may be required to post a surety bond to insure that reimbursements are made. It is possible that the cost of such a bond could be greater than the tax. (This provision of the law has never been employed by the Texas Workforce Commission.)
If you are not a reimbursing employer and wish to become one, a district must complete an Election to Pay Reimbursements (Form C-6A) (available on TWC’s website) to elect to pay reimbursements. After their status is established, employers must remain a taxed or reimbursing employer for at least two calendar years before requesting to change that status. Reimbursing status may be changed by filing the Application for Withdrawal of Election to Pay Reimbursements (Form C-6F) with TWC no later than December 1. The new status takes effect January 1 of the following year.
Please note that whatever status you elect, when you get notice of a claim, TWC requires that if you are going to respond, which is not required, you must submit an adequate response. TWC recommends that your response related to a voluntary work separation should show how a reasonable employee would not have quit for such a reason, and a response to an involuntary work separation should show that the discharge resulted from a specific act of misconduct connected with the work that happened close in time to the discharge, and that the claimant either knew or should have known that discharge could occur for such a reason.