Unemployment Compensation - Who pays for it?

Who Pays for It?

You, the employer, pay for unemployment compensation through a tax managed by the Florida Department of Revenue. It is one of your business costs. Workers do not pay unemployment tax and employers must not make payroll deductions for this purpose. The consumer bears this cost in the price of the goods or services you sell. Thus, the burden of unemployment is shared by all. Your payments go into a fund from which monies are paid to eligible claimants. After a qualifying period, employers with a stable employment history will receive a lowered tax rate.

Who Is Liable?

A new business must report its initial employment in the month following the calendar quarter in which employment begins. You can register to pay unemployment using our secure Internet site. You are liable if you meet any of the following conditions:

• You have quarterly payroll of $1,500 or more in a calendar year.
• You have one or more employees for a day (or portion of a day) during any 20 weeks in a calendar year.
• You are an agricultural employer and have five or more workers for a day (or portion of a day) during any 20 weeks in a calendar year, or a $10,000 cash payroll in any calendar quarter.
• You are a domestic employer with a cash payroll of $1,000 or more in a calendar quarter.
• You are liable for federal unemployment tax.
• You purchase all or part of a liable business, or the combination of your payroll or employment and that of the business you purchased meets the liability criteria.
• You are a nonprofit organization as defined in section 3306(c)(8) of the Federal Unemployment Tax Act and s. 501(c)(3) of the Internal Revenue Code and have four or more employees for a day (or portion of a day) during any 20 weeks in a calendar year.
• You are a state, county, city, or joint governmental unit.
• You are an Indian tribe or tribal unit.

Nonprofit organizations, governmental agencies, and Indian tribes are given the option of paying their unemployment insurance costs by the tax-paying method or the reimbursable method. The reimbursable employer must repay benefits paid to former employees on a dollar-for-dollar basis. Regardless of the method of payment, these employers must submit tax and wage reports each quarter. If an employer chooses to change the method of paying, it must sign a special election form and stay with the chosen method for at least two years.

A liable employer must display the poster To Employees (Form UCT-83) where all employees can see it. Posters are available in Spanish (Form UCT-83SP).

Voluntary Coverage

You may apply for voluntary coverage for your employees. Voluntary coverage is for a minimum of one calendar year and subject to approval.

Who Are Employees?

These definitions will help you understand who is considered an employee.

• Employment - Any service done by an employee for the employer.
• Employee - A person who is subject to the will and control of the employer as to what must be done and how it is done.
• Casual Labor - Work that is not in the course of the employer's regular trade or business and which is occasional, incidental, or irregular. Do not confuse casual labor with temporary or part-time employment. A corporation cannot have casual labor, as covered in the Internal Revenue Code.
• Independent Contractor - A person not subject to the will and control of the employer. The employer does not control or direct the manner or method of job performance. The general public is aware that the person is an independent contractor.
  • The Internal Revenue Service has information that can help you decide whether a worker is an employee or independent contractor.
• Officers of a Corporation - Any officer of a corporation performing services for the corporation is an employee of the corporation during tenure of office, even when no compensation is received for such services. Compensation, other than dividends upon shares of stock and board of director fees, is presumed to be payment for services performed.
• Limited Liability Company (LLC) - A limited liability company is treated the same as it is classified for federal income tax purposes. A person performing services for an LLC, treated as a corporation for federal income tax purposes, is an employee. A person, other than a partner or exempt employee of a partnership, performing services for an LLC treated as a partnership for federal income tax purposes, is an employee. A person, other than the sole proprietor or an exempt employee of a sole proprietorship, performing services for an LLC, treated as a sole proprietorship for federal income tax purposes, is an employee. A single member LLC may be treated as a corporation or a sole proprietorship for federal income tax purposes.
• S Corporation - Salaries paid to corporate officers are considered wages. All or part of the distribution of income paid to corporate officers who are active in the business and are performing services for the business can be considered wages.
• Employee Leasing Company - An employee leasing company is an employing unit that has a valid and active license under Chapter 468, Florida Statutes.
• Salesperson - Any individual paid solely by commission under your direction and control is an employee. The law provides exemption for insurance agents, real estate agents, and barbers who are paid solely by commission. If they are paid by salary only or salary and commission, both are taxable and exemption does not apply. There is no federal unemployment tax exemption for barbers paid solely by commission.
• Agricultural Labor - Any service performed on a farm in the employ of the owner, tenant, or any other operator of a farm in connection with the production or harvesting of any agricultural or horticultural commodity or in connection with the maintenance or operation of farm equipment or grounds.

Employment Not Covered

Some types of work are not covered and some wages paid for services are not subject to unemployment taxes. These exemptions include:

• Employees of a church, or convention or association of churches; or of organizations operated for religious purposes that are operated, supervised, controlled, or principally supported by a church, or convention or association of churches.
• Services performed by aliens in agricultural labor, who have entered the United States pursuant to s. 1184(c) [formerly s. 214(c)] and s. 1101(a)(15)(H) [formerly s. 101(a)(15)(H)] of the Immigration and Nationality Act.
• Services performed by nonresident aliens, who are temporarily present in the United States as non-immigrants under subparagraph (F) or (J) of s. 1101(a)(15) [formerly s. 101(a)(15)] of the Immigration and Nationality Act.
• Services for a school, college, or university by a student enrolled and attending classes there.
• Work on a fishing vessel under ten net tons.
• Services performed as a student nurse in a hospital or nurses' training school, a medical school intern in a hospital, or a hospital patient.
• Students working for credit in a school program such as CBE or DCT.
• Persons under age 18 delivering or distributing newspapers.
• Service for government by elected officials; members of the legislature and judiciary; those serving on a temporary basis in cases of fire, storm, etc.; or serving in an advisory capacity that ordinarily does not require more than eight hours per week.
• Services performed for a son, daughter, or spouse; or by children under the age of 21 for their father or mother. When the employing unit is a partnership, an exempt relationship must exist to all partners or there is no exemption. This exemption does not apply to corporations.
• Direct sellers who are contracted to sell or solicit consumer goods in homes or places other than a permanent retail establishment, and whose substantial remuneration is directly related to sales.
• Speech, occupational, and physical therapists who are not salaried and working pursuant to a written contract with a home health agency as defined in s. 400.462, Florida Statutes.
• Service performed by an individual for remuneration for a private, for-profit delivery or messenger service, if certain conditions are met.
• Service performed by an inmate of a penal institution (work release programs).

Wages

Wages are payments for services in employment, including commissions, bonuses, back pay awards, and the cash value of all payments in any medium other than cash. The cash value of meals and lodging will be exempt if it is included as a condition of employment for the convenience of the employer.

Sick and accident disability payments paid by an employing unit to an employee in the six calendar months after the calendar month the employee stopped working are wages. Payments made under a workers' compensation law are not wages. Tips are covered wages if received while performing services that constitute employment and are included in a written statement furnished by the employee to the employer.

Reporting Wages

Wages must be reported on an Employer's Quarterly Report (Form UCT-6) is mailed to each liable employer, except those obligated to file electronically or annually.

The report must list total wages paid to covered workers, excess wages, taxable wages, and tax due and show each employee's name, social security number, and total wages paid during the period. If an employer is operating two business units and the secondary unit(s) has a cumulative total of at least ten employees, a Multiple Worksite Report (Form BLS-3020) must be submitted.

You can verify employees’ social security numbers through the federal government's Social Security Number Verification Service.

Annual Filing Option

An employer liable for unemployment tax may select an annual filing option if all the employees exclusively perform services that constitute domestic service and the employer is eligible for an earned tax rate. An Application to Select Filing Period for Employers Who Employ ONLY Employees Who Perform Domestic Services (Form UCT-7A) must be submitted by December 1 to qualify for annual filing in the next calendar year.

Filing and Paying Taxes

You can report and pay unemployment tax using Revenue's secure Internet site. Or you may choose to:

• Develop your own software.
• Upload a file.
• Pay by telephone.

Before you can file and pay your taxes electronically, you must enroll in our e-Services program. Taxpayers who pay electronically can download a payment due date calendar and helpful hints for e-filing.

• You must file Form UCT-6 and pay the tax electronically if you are an employer who employed ten or more employees in any quarter during the preceding state fiscal year (July 1 - June 30).
• You must file Form UCT-6 electronically if you are a person who prepared and reported for 100 or more employers in any quarter during the preceding state fiscal year (July 1 - June 30).

The penalty for failure to file a report by electronic means is $10. The penalty for failure to pay the tax electronically is $10 for each remittance. You can obtain a waiver from electronic filing if you have a valid business reason. There is no waiver from electronic payment.

Filers who do not meet conditions 1 or 2 above may file a paper UCT-6 return. We have detailed instructions to help you accurately complete your return. However, we encourage all taxpayers to file and pay electronically. Returns and payments are due on the 1st and late after the last day of the month following the end of each calendar quarter.

Installment Payment Option

Typically, the Employer’s Quarterly Report (UCT-6) and full payment of the quarterly tax are due by April 30, July 31, October 31, and January 31 (of the following year). A law change (Chapter 2010-001, Laws of Florida) allows employers to make installment payments for the first three quarters in 2010 and 2011 if the UCT-6 and installment payment are submitted on time. An employer who chooses to pay in installments must pay an installment fee of $5.00 one time per calendar year, with the UCT-6 for the quarter in which the election for installments is made.

You can use our online calculator to compute your installment payments.

How Much Do You Pay?

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.

When a business is transferred, the successor may count wages paid to an employee by the predecessor when determining the taxable wage figure. The wages of employees who work in another state and are transferred to Florida are counted when calculating taxable wages reportable to Florida.

Important to Report Timely

An Employer's Quarterly Report, UCT-6 is due the 1st day of the month following the end of each calendar quarter and is late if not postmarked by the last day of the month.

1^st Quarter (January thru March)

due by April 30

2^nd Quarter (April thru June)

due by July 31

3^rd Quarter (July thru September)

due by October 31

4^th Quarter (October thru December)

due by January 31

However, if the last day of the month is a Saturday, Sunday or legal holiday; the timely filing period is extended until the end of the next working day.

If you are making your payment by EFT or Internet, you must initiate the payment by 5:00 p.m. ET on the business day prior to the filing date(s) listed above for your payment to be considered timely.

Whether you are a paper or electronic filer, you can sign up to receive an e-mail every collection period, reminding you of the due date. 

Late filing penalty is charged at $25 per month or fraction of a month that a report is delinquent. Interest is charged at 1% per month on the unpaid tax from the original due date until the tax is paid.

For employers who must file electronically, failure to do so will result in a penalty of $10 per report. The penalty for failure to submit a payment electronically is $10 per submission.

Your Tax Rate

Only taxable wages that are reported by the end of the quarter immediately preceding the quarter for which the rate is calculated can be used in the tax rate calculation. When a new employer becomes liable for the tax, the rate is .0270 (2.7 percent) and will stay that until the employer has reported for 10 quarters (11 quarters in some cases). The account will then be rated by dividing the total benefits charged to the account (6 quarters) by the taxable payroll reported for the first 7 of the last 9 quarters immediately preceding the quarter for which the rate is effective.

The one exception would be employers liable by succession and who choose to accept the tax rate of the previous employer, along with the responsibility of paying any outstanding amounts due. At that time, a tax rate will be calculated using the employment record and the rating factors, which are built into the Unemployment Compensation Law.

The maximum tax rate allowed by law is .0540 (5.4 percent), except for employers participating in the Short Time Compensation Program. Rate notices are mailed to all employers that have a tax rate. You may appeal the tax rate within 20 days from the date of notification (date printed on the rate notice).

Obtain your annual unemployment tax rate

Dial 800-352-3671 and follow the list of prompts. You will need to provide your seven-digit Employer Account Number and your Federal Employer Identification Number.

How Rates Are Calculated

The unemployment compensation system is a federal-state partnership. Each state determines benefit qualification levels and amounts, benefit duration, disqualification and tax structure, within certain federal limits.

For example, federal guidelines require each state to:

• Base its tax structure on benefit experience.
• Have a new employer tax rate of at least 1.0%.
• Have a maximum tax rate of at least 5.4%.
• Have a taxable wage base of at least $7,000.

Each state sets tax rates, benefit levels, and trust fund balances based on that state's particular needs. Each state has its own benefit trust fund account within the U.S. Treasury.  In Florida, the account is funded by a tax paid by employers.

Florida assigns new employers an initial tax rate of 2.7%. This rate stays in effect for the first 10 quarters. At the end of this period, an employer has enough history to qualify for an experienced-based tax rate. The formula for calculating the rate combines three major factors:

1. The individual benefit ratio makes up the greatest portion of the employer's final tax rate. This ratio is calculated by dividing the previous three years of benefit charges for former employees by the taxable payroll for that same three-year period. So the benefits charged and the size of the payroll have a direct effect on the employer's tax rate.
2. The variable adjustment factor is made up of three ratios that will spread the costs among employers that have had benefit charges in the three previous years.
   • The last three years of non-charged benefits (those not attributable to any employer).
   • Excess payments (the portion of benefit charges which exceed the maximum rate of 5.4%).
   • The fund size factor, which requires the state to keep a trust fund balance between 4% and 5% of one year's taxable payroll. If the trust fund has a balance that is within this range, the fund size factor will be zero.
3. The final adjustment factor spreads costs not included in the second factor to all employers whose rates are not at the initial or maximum levels. This factor is also distributed among employers who had no benefit charges in the preceding three years. This factor determines what the minimum rate for that tax year will be.

Ideally, each employer would pay the exact amount of unemployment compensation benefits that are chargeable to his or her account. This is not possible because the maximum contribution rate is 5.4%, and sometimes benefit payments are not charged to a specific employer. These added costs are divided among all rated employers through the variable adjustment factor and the final adjustment factor. Each employer's contribution rate is his or her benefit cost, plus a share of unassigned costs. This keeps the unemployment compensation program solvent.

Termination of Coverage

You will be eligible for termination if you have not met any liability criteria for an entire calendar year or if the business closes (which is different than just selling assets, just selling stock, or merging into another business to be the continuing entity). If you qualify, because you have not paid wages for a year, you must apply for termination of coverage by April 30 of the following year. Contact the Department in writing to close the account of a closed business after the final wages have been paid. Once liability is terminated, you must reestablish liability in the same manner as any new employing unit.

Claims For Benefits

Unemployed workers who are covered under the Florida Unemployment Compensation Law will receive benefits if they are eligible and qualified. Prompt and accurate information from employers is vital to the establishment of a claimant's right to benefits. You must furnish information timely when requested. This is to your advantage because it helps protect your tax rate. Information must be complete, accurate, and factual.

For more information about the claims process, including qualification requirements and disqualification reasons, contact the Agency for Workforce Innovation.

Protest and Appeal

One of the concepts of the Unemployment Compensation Law is to provide a fair and impartial hearing to resolve disputes. The Department of Revenue will make every attempt to resolve informal protests. If not resolved, formal protests and appeals should be directed to the Agency for Workforce Innovation. Appeals must be filed within 20 days from the date printed on the notice you have received, must be in writing, and must clearly state your reasons for appealing. For more information, contact the Agency for Workforce Innovation.

Gustavo A. Viera, CPA