What's the bottom line?
Because of a one-month crash project organized by The Business Council, some 2,506 New York employers pre-paid a total of $171,692,326.14 of their 1998 unemployment insurance taxes before the end of calendar 1997.
This automatically triggered a $420 million reduction in UI tax rates. This cut will save most companies (whether they pre-paid or not) $63 a worker this year; even those with the largest "negative balances" will save $49 per worker.
- What triggered the rate cut?
Under the law, the tax rate you pay for unemployment insurance depends upon two things: your company's own unemployment experience; and the amount of money built up in the overall UI trust fund.
The legal formula required that if the balance in the trust fund were approximately $930 million by the end of calendar 1997, that would trigger two automatic reductions in rates. First, the 0.7 percent rate for the so-called "supplemental tax rate" would be triggered off, for all employers. Second, the experience-rated tax rate would be cut by 0.2 percent, for all but those employers with the largest negative balances. For most private-sector employers, this would add up to a cut of nine-tenths of a percentage point in their total UI tax for 1998, on a wage base of $7,000 - thus, a savings of $63 per employee.
Business Council staff realized in early November that the UI fund would come close to the $930 million level in 1997. That led to the idea of organizing a voluntary pre-payment effort to put the fund "over the top" and secure these savings in 1998 (instead of 1999 or later).
The pre-payment campaign was launched with a goal of getting $130 million in pre-payments from 400 or more companies. In the end, over 2,500 companies pre-paid over $170 million, to trigger the rate cut.
- Do we get the savings even if we didn't pre-pay?
Yes, whether or not you participated in the pre-payment effort, every UI taxable employer in the state will get the the rate cut. (Non-taxable employers [municipalities and some non-profits] do not pay UI taxes directly and therefore will not get the savings.)
- When do we get our savings?
Most companies that participated in the pre-payment operation calculated their pre-payment at the reduced rate - and in that sense they have already received all, or most, of their 1998 savings. The Labor Department will send you an acknowledgment detailing how to account for the pre-payment on your 1998 UI tax return.
If you didn't pre-pay, the lower tax rates will automatically be reflected in your 1998 UI taxes, beginning with the payment for the first quarter, which is due April 30, 1998.