Modifying the New Employer State Unemployment Insurance rate to be in line with the national average will encourage new business formation in Illinois. Redefining “misconduct” will allow for less error in filings and less time and money spent in court interpreting the law. Increasing the penalty for Unemployment Insurance fraud will be a greater deterrent and aid in creating a positive balance in the Unemployment Insurance Trust Fund. The three proposals will bring Illinois closer to national trends and level the playing field for new and established businesses in the state.
Illinois has the 11th most expensive State Unemployment Insurance tax in the nation for new employers. Each state has a taxable wage base per employee and a New Employer Unemployment Insurance tax rate. These two factors combined determine the average amount business pay per employee in Unemployment Insurance taxes. Illinois’ 2015 taxable wage base is $12,960 and the New Employer tax rate is 3.75%. New businesses in Illinois pay $486 annually per employee. Illinois entrepreneurs pay the highest cost per employee compared to the most prolific start-up states in the nation:
• Florida $189
• California $238
• Texas $243
• Colorado $251
• New York $430
• Illinois $486
Illinois has a New Employer rate of 3.75% while the national average is about 2.5%. With a high rate for new employers, Illinois attracts fewer new businesses than many other states. Currently, Illinois averages 6,780 new employers each quarter, which is less than a fifth of the new employers averaged in California (39,187) per quarter.
The New Employer tax rate is set yearly based on the following four indicators:
1. Economic climate of the past three years,
2. Amount of fraud and waste in Unemployment Insurance,
3. Number of people returning to work, and
4. Balance of the Unemployment Insurance Trust Fund.
The New Employer tax rate would decrease organically if all of these factors were mitigated.
Currently, Illinois has a net loss of $24,255,0201 per quarter due to overpayment from fraud and non-fraud2. This net loss is the highest in the nation.
12 states have a net gain of recouping overpayments, which helps pay down outstanding overpayment balances:
• New Jersey
• New Mexico
• South Dakota
• New Hampshire
Among these states is Arizona and New Jersey, which have recently implemented the same national technology standards as Illinois. New Jersey and Arizona also altered their definitions of “misconduct” to be specific and fair. These changes brought Arizona and New Jersey from fiscal desperation in their Unemployment Insurance trust funds to recouping more overpayment each quarter than the amount that is overpaid each quarter.
Illinois’ overpayment loss is partly due to the definition of misconduct. Illinois is the only state with language requiring willful violation that harms the employing unit or other employees. Illinois’ current definition is not copasetic with the rest of the nation, which again discourages businesses from functioning in the state.
• Amend the law to lower the new employer rate for State Unemployment Insurance tax to 2.7% for startup companies based in Illinois for the first 3 years. The industries applicable are limited to technology, manufacturing, retail, and professional services.
• Redefining “misconduct” will allow for less error in filings and less time and money spent in court interpreting the law.
• Increase the penalty payment assessed in addition to repayment of the sum of money obtained through fraud from the federally mandated minimum of 15% of the sum obtained through fraud to 25% of the sum obtained through fraud.
In November 2015, Gov. Rauner, representatives from both parties, and business and labor groups reached an agreement this month that sets new standards for unemployment benefits eligibility. The new law tightens the definition of “misconduct” used to disqualify laid-off workers from receiving unemployment benefits. For more details, click here.
SBAC Unemployment Insurance Sub-Committee Chair, Susan Mravca, CEO, JuvodHR
Alexandria Henke, Indiana University 2017
Political Science, BA
Laura M. Johnson, M.Ed., B.S.B.M.
Wright State University Boonshoft School of Medicine