Question

C1. Reducing a High Unemployment Tax Rate

Over the past two years, Kermit Stone, the controller of Hilton Company, has been concerned that the company has been paying a large amount of money for state unemployment taxes. On reviewing the “unemployment file” with the head accountant, Deborah Murtha, he learns that the company’s tax rate is near the top of the range of the state’s experience-rating system.

After calling the local unemployment office, Stone realizes that the turnover of employees at Hilton Company has had an adverse effect on the company’s tax rates. In addition, after consulting with Murtha, he discovers that the eligibility reports that come from the state unemployment office are just signed and sent back to the state without any review.

The eligibility reports are notices that an ex-employee has filed a claim for unemployment benefits. By signing these reports “blindly,” the company, in effect, tells the state that the employee is eligible for the benefits. Any benefits paid are charged by the state against Hilton Company’s account.

Stone is convinced that the rates the company is paying are too high, and he feels that part of the reason is the “blind” signing of the eligibility reports. Besides this, he wonders what other steps the company can take to lower its contributions rate and taxes.

Answer 1

The Company can take following steps to reduce the taxes-

1. Reduce the attrition rate and this will lead to less filing of the claims.

2. Set up a process system in place where in all the claims shall be received, reviewed and processed in a time bound manner by experts before being accepted by the Company.

3. Appoint a in house legal counsel to argue the case in favor of the Company should dispute arise for non-acceptance of claim.

4. Buy down unemployment tax rate if state permits.

5. Leverage an acquisition if the other company has lower established rate which the Company can use

6. Handle termination in thoughful manner.

7. Obtain explicit information from employees who quit for documentation