N.C. employers to glean $600 million+ boon in unemployment tax savings, agency letter says

RALEIGH – A letter that many North Carolina businesses will begin receiving today tells employers that a collective $550 million in tax surcharge reduction is on the way thanks to the elimination of the state’s unemployment debt to the federal government and the establishment of a surplus in the state’s unemployment insurance account. But a commerce department official said the true benefit to more than 200,000 employers will be over $600 million once premium reductions are factored in for 2016.

“For the calendar year beginning 2016, State Unemployment Insurance Taxes (SUTA) for North Carolina Employers will be reduced by 20%” reads the letter, which is unsigned but comes on letterhead from the N.C. Division of Employment Security, or DES, a part of the Department of Commerce. The letter also states that since North Carolina employers have repaid the $2.8 billion federal loan the state secured to pay claims, employers will save a collective $300 million that is retroactive to Jan. 1.

NC-TaxRateReduction15

About 200,000 North Carolina employers pay into the unemployment insurance system via the federal and state unemployment taxes, or FUTA and SUTA. Then DES pays workers who become unemployed involuntarily.

State leaders repaid the debt to the federal government by instituting the surcharge on businesses and curtailing benefits, which had been among the most generous in the southeast but which critics contend are hurting workers who are still without jobs.

Assistant Secretary Dale Folwell.

Assistant Secretary Dale Folwell.

Dale Folwell, chief of DES, says that the reduction in the state’s unemployment rate will provide another boon to employers in 2016. Unemployment in the state topped 11 percent in the depths of the recession but has been under 6 percent since September 2014. Less unemployment means fewer North Carolinians being laid off, meaning fewer claims coming in and thus less money going out in unemployment benefits.

“Basically I’m a captive insurance company. And when our insurance is more solvent, we can charge businesses less to be one of our customers,” Folwell said.

Folwell estimates that the premiums will decrease by a collective $150 million. But the final calculations on premiums have not yet been calculated for 2016.

Folwell, an accountant and former state legislator, says the changes are hard to explain to employers who have not yet seen the benefits of the policy and economic changes. For instance, the lag in calculation times means that businesses will not be paying unemployment tax rates based on what happened in 2015 until the new year.

Estimated collective savings for 200,000 N.C. businesses
FUTA $310 million
SUTA $250 million
Premium
reductions (*est.)
$150 million*
TOTAL $610 million

The reductions will not affect all businesses due to the difference in how rates are calculated. Businesses pay into the system based on how many employees they have laid off recently. Those that have had recent layoffs pay the highest rates.

“The governor, Secretary Skvarla and I are always talking about these taxes being cut, but yet when we talk to businesses, they’ll say ‘I just wrote you the biggest check ever.’ The reason is that they just wrote me a check for what happened in 2014, not 2015,” said Folwell.

The letter says that businesses can rely on the FUTA and SUTA reductions with “complete confidence,” and provides a phone number to call if employers have questions.