Florida Unemployment Compensation Law - Essay Example

Unemployment Compensation Florida unemployment compensation law provides wage protection (partial and temporary income) to the jobless workers. For the creation of unemployment insurance fund, the employers are held liable to pay. This is done by way of tax towards Florida revenue department. The payment towards tax becomes a part of their business costs. For the insurance fund the employees are not required to pay any type of tax. Employers are not allowed to deduct the employees' salary or to set apart a portion of the workers payroll to the insurance fund for unemployment compensation. Instead, they want to pay more for the employees' salaries and wage protection. The business cost rising from the payment of tax towards unemployment compensation will have to recoup by the business firm through its business and actually the consumers bear the tax burden of the firm. The tax rate of unemployment insurance is based on the stability in working of the firms. A company with stable employment history will get deduction in tax rate. An employer is held liable for paying towards unemployment insurance in case he has quarterly payroll of $1500 or more in a calendar year. "The tax rate for new employers is .0270 (2.7 percent). The first $7,000 in wages paid to each employee during a calendar year is taxable. Any amount over $7,000 for the year is excess wages and is not subject to tax. Excess wages can never be greater than gross wages."1 According to the Federal Unemployment Tax Act establishment and administration of the Unemployment Compensation Program is carried on mutually by the state and federal governments. Thus there exist dual system of state and federal in the tax program and the, payments of the employer towards payroll taxes is levied by both the state and federal governments. The rate of payment towards unemployment taxes by employees is on the basis of established tax rates and the history of employers work stability. Thus employers having a history of greater unemployed workers would have to pay more towards the unemployment compensation tax. In case the business owner is compelled to lay off his business for military service, the resulted unemployment to workers would lead to count as a higher unemployment rate in the firm and thus the tax rate payable by the employer will be higher. Similarly if the employees took leave from their jobs for military service then also firms work history will be shown as higher unemployment rate and thus also the tax rate will be increased. In case workers who refrain from job for joining with their transferred military spouse have the legal right to receive unemployment compensation. Thus the employer wants to pay for their non working employees even though job is exist there. In some states the employers are not chargeable for the workers' leave for military service and thus it does not taken for calculating its tax rate. However the workers have the right to receive unemployment compensation and this is charged from the unemployment compensation fund of the state. Thus the actual cost of workers compensation is paid by the employer as a socialized cost and this will lead to increase the overall state unemployment tax rate. 2 Complicated tax regulations is causing firms to indulge in unnecessary law suits with high cost and this will always prevent establishing new business. Along with this higher rate of workers compensation and unemployment insurance has lead to increasing the labor cost of firms. In Florida there employ tort reform for reducing the burden of employers. Joint and several liability rate reductions are followed in workers unemployment compensation insurance. Small businesses are seriously affected by the workers compensation insurance. Majority of the burden of the rising tax rate is always comes to small businesses. Due to shortfalls in state regulation relating to compensation insurance the small business are required to bear a major portion of the UC fund. The working cost such as regulatory costs and tax payments are always becoming financial burden to small firms as they could not change their selling price of goods and services corresponding to changing rate in taxes. The cost per product seems to be higher in small firms due to increasing tax burden. But they can't increase the selling price of goods and services due to the presence of large scale firms in the industry. Larger firms always in a position to overcome rising tax rate with their economies of large scale production. Instead small business firms are not always counteracting the increase in business cost resulting from increasing tax rate by adding on their product pricing. The business lay-off is common in small business firms due to shortages in financial and other resources. Thus the work history in small business is negatively rated and thus the tax rate payable by them will be increased. The tax payment towards state is reducing the net profit of small business greatly than large firms. A major portion of workforce in State is working in small businesses. The regulatory cost per employees in small business firms are approximately 60% more than the large firms' cost. Instead of complementary tax laws existing in Florida with growing economy, as per the 2007 small businesses survival index, Florida ranked as the 5th worst state for its business environment. The basis for this index calculation is the spending trends and tax policy of government, regulatory policy, workforce issues, and cost of transacting business. 3 Minimum wage requirements in Florida have risen to $7.21 per hour effective on first January 2009. The prevailing rate is $ 6.79 per hour. As per the federal law business firms need to pay wages specified under the federal or state minimum wage whichever is higher. From July 2009 the federal minimum wages will increase to $ 7.25 per hour. Then business firms in Florida will have to pay the higher federal rate to its employees. This wage requirement is applicable to all employees covered under the federal minimum wage law. This annual increase in minimum wage rate has effect on unemployment insurance program. When the insurance program is transferred to private sector, the small businesses would have to pay more towards insurance claims in case of unemployment to workers. 4 Continuous rising in minimum wage requirement of employees are badly affecting the working of small business. Larger firms have the ability to meet the minimum wage requirement from their economies of large scale production. Along with the minimum wage rate increasing corresponding increase will be occurring in unemployment compensation. Thus the fund requirement for the compensation program is also increase. To meet the increasing fund requirement the state is always following increased tax rate and the burden of this increased tax rate fall on to the small firms. The fund requirement for meeting the payments of unemployment insurance claims is met by the employers by way of paying taxes per employees' payroll. The rate of unemployment has risen over projected rates and this causes problems on lack of funds for the unemployment insurance claims. Employees have the right to receive maximum of $450 per week towards their unemployment insurance claim as per the income. By the unemployment insurance program the employers want to pay towards pay roll taxes. This will increase the tax burden of business firms which will result in reducing the net income from business. To overcome these employers would have to follow further measures like reducing their permanent labor force and following hired labor for their business. This will result in increasing the unemployment rates in the state. Thus burden of insurance claims on unemployment would have to share with the employees. It is better to set apart a portion of the employees' salary to the unemployment insurance fund. Thus employers' burden can be reduced. Employees have the right to receive maximum benefit of $ 450 per week towards their unemployment compensation. But the rising number of unemployment workers over expectation has affected the unemployment compensation fund. There is always shortage of fund for meeting the needs of jobless workers towards compensation. For setoff the shortages in fund the state will be forced to raise the tax rate of UC fund and in such case the small business firms are required to take over tax burden. This will affect the day to day working of the business. 5 Payment by business firms towards the UC fund are continuously increasing over the years. Seasonal business firms are required to lay off their business during off-season and workers of these business firms are treated as jobless during off-season and they also have the right to receive unemployment compensation. It seems that there is an annual payment of compensation to these workers and it will cause to raise the tax rate payable by the employer. Thus it is required for them to close their business instead of lay off during off-season. Even though the UC program is helping to stimulate the economy of the state it is always affect small business firms by increasing their business working costs. 6 The unemployment benefits are calculated on the basis of earnings in base period. By way of take part the employees on the creation of unemployment compensation fund is a considerable way to irradiate the fund shortage. In order to maintain the UC fund with sufficient balance and stable the state has following the method of increasing the tax rate towards this fund. Thus the UC tax rate in the state has increased over the past years. It has seen that in Florida, for the unemployment compensation premium payment by a small business firm, there is an increase of $ 154 per year due to the increasing minimum rate in tax. An employer in the state has to pay minimum rate of $ 24.50 per employee per year or $ 3.50 per $1000 salary payroll up to a maximum rate of $7000 in wages. Payments over $7000 are not taken for insurance premium. The maximum rate is $ 54 per employee per year. 7 Small business firms are facing problems with increased work cost and complex regulations of tax payments. Unemployment problems in USA and Florida in particular: The world economy and the US economy in particular is facing a downturn these days. Many people across many business sectors are finding themselves jobless due to layoffs and downsizing. It has been reported that Florida is one of the states which have been the hardest hit. Unemployment rate is now 6.1% as of September this year which is the highest in the past five years. About ten million people in the country are officially considered to be unemployed and nearly 500,000 jobless are applying to avail unemployment insurance benefits per week. 8 People who have been unemployed continuously for more than six months is also very high and has touched 2 million by September 2008. The US Government has put forward some legislation that has been beneficial to the unemployed. For example, they have added another thirteen weeks of benefit time to the existing 26 weeks. This happened in June, but since then more than 90,000 additional unemployed people have emerged. A major change in the legislation which will bring in more benefits is waiting approval in the Senate. This new legislation has been enthusiastically approved by the House of Representatives and the Senate should speed up the process quickly. The above report also states that about 800,000 people have now fully received their insurance amount for the year. This means that they will not be receiving any money for the rest of the year. The situation is Florida is slightly worse than the national average. Unemployment rate was 6.6%. Even though this is only slightly above the national average, the increase in the state was much more. It was only 4.2% one year back. More than 600,000 people were unemployed in the state during September 2008 which is nearly 38% more when compared to the previous year... This is also the highest rate since the recession that happened during the early 1990s. But the greatest shock was the increase in claims. The number was more than 41,000, nearly 83% more than the figure for the previous year. The average claim per week came to approximately 230 USD. Nearly 200,000 people have received their full claims and will not get any income for the rest of the year. The problem is compounded by the fact that there are too many administrative hurdles and loopholes in the law. Only 36% of unemployed could claim insurance even though the rest were entitled to the claim. The figure was only 31% in Florida. More and more employers are going in for part time workers and this makes those ineligible for compensation if they become jobless. An article by Vickie Lowell Ph.D. (of the Institute of Women's Policy Research and Maurice Emsellem (of the National Employment Law Project) have also studied the situation in the state. They say that Florida has the lowest percentage of applicants for unemployment insurance. "Fewer unemployed workers apply for UI in Florida than in any other state, at least partly because of administrative barriers." 9 The 1996 law which stipulated higher earning levels for eligibility has also been problematic for many unemployed persons. Solutions: The article mentions that the new legislation that are yet to be passed has provided for a larger number of benefits to the unemployed. It also suggests that the margins for entitlement should be increased and also that part time workers be included in the scheme. But the problem here would be that this will be an additional burden on the employers, especially for the small businessmen. The administrative barriers that prevent many from applying should be removed and the rules and regulations should be simplified. One of the solutions to bring more flexibility is to let the states handle the insurance by themselves. Each state can have their own laws and statutes. This will also reduce the administrative barriers. Another option is to encourage people to save more. The problem with insurance is that many people will not bother to save money with the feeling that they will get money (insurance) if they loose their jobs. "By providing American workers with a safety net in the event of unemployment, albeit one with several holes, the unemployment insurance system discourages that time-honored means of dealing with the possibility of loss of income-saving." 10 The above article also suggests something called an Unemployment Insurance account which could be implemented on the lines of the IRA. Each worker can decide how much amount to put into his account. He can withdraw it if he finds himself unemployed. Once the amount is withdrawn, the employer starts to pay the tax for the insurance. The scheme should be made in such a way that it should be tax deductible as in the case of the IRA. There is one hidden advantage also in this case. In case a person is unemployed, he will withdraw his savings from his account. Such a situation will force him to look for another job more seriously because otherwise he is reducing his savings. It would be better to find another job rather than withdraw money from what has been saved. Another option would be to privatize the whole system. Instead of the government (along with its bureaucracy) being allowed to handle the unemployment insurance, private companies should be brought in. At present the system is involuntary. That is to say that every one has to pay his share (in case eligible) whether he likes it or not. It can be seen that there are two types of workers. One category will be those who work in more or less secured environments or one who is qualified enough to get another job if he looses his present one. The other would be a person who is not secure and will accept whatever jobs are being offered. Such a person will not be very qualified also. The former person who is secure will not be as willing to pay the amount as the latter type. The ideal way would be to bring in private professionally run insurance companies that can provide various schemes and payment options. Workers can choose the installment amount as well as the scheme according to his or her needs. The only area where private insurance will not work is when a person is fired. This is because it happens due to human being's will (in this case, the employer) and not due to accidents or natural causes. Another step that would be beneficial to employers, mainly for small businesses is to further subsidize their share if their layoff rate is very low in other words, if the company is able to consistently provide people with jobs until they retire, their share of insurance should be subsidized. All the above steps will help to make the system more efficient and more effective. Costs and wastage can also be brought down. All these will be beneficial to small businesses by bringing down their expenses towards contribution towards unemployment insurance. 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