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Law increases business costs, starting in 2002.

Rate Increases Scheduled for Unemployment Insurance

Thousands of Arkansas companies will begin paying about 30 percent more into the state's unemployment insurance fund in a couple of years. Some companies could see the rate jump another 24 percent by 2004.

Changes in state law during the past legislative session targeted more than 4,000 companies who pay less into the system than the state pays in unemployment benefits to the companies' former employees.

The deficits have cost the state's unemployment trust fund $13 million-$16 million annually during the past several years, according to Hugh Havens, the administrator of the state's unemployment insurance program for the state Employment Security Department.

The deficits have reduced the state's unemployment insurance trust fund to a reserve of about 14.5 months, the amount of time the state could pay benefits without collecting any more money from employers, Havens says. The national average for such trust funds is 33.6 months. Historically, Arkansas has maintained a balance of 20-24 months.

"We had to stop the bleeding," Havens says of the changes in the state law.

Some of the companies have underpaid the system for as long as 18 years and 659 of them have underpaid for 10 years or more. The cumulative total of the underpayments is about $187 million, he says.

Act 1055 of 1999 increases, from a maximum of 6.4 percent to now 8.4 percent, the contribution of employers who pay less into the fund than the state pays out on their behalf. If the companies continue to pay less than the cost of unemployment benefits, that percentage would increase to 10.4 percent in 2004.

Almost one-half of the 4,000 companies employ fewer than 10 people and are in one of four industries: mining, construction, manufacturing and agriculture, forestry or fisheries.

Last year, the state collected about $205 million from more than 59,000 employers to fund the unemployment insurance program and paid out more than $190 million in benefits. The trust fund also earned almost $4 million in interest from investments in government securities.

The state collects more than it spends from most companies, which helps maintain the account balance. The ESD has no plans to collect past deficiencies, Havens says.

The rate each company pays is calculated annually and varies from 0.5 percent to 6.4 percent. It is determined by the total contributions the company has paid, the total value of claims paid to former employees and the company's annual payroll.

Companies have ways to avoid the increases, and the ESD plans to hold seminars around the state this year to explain the law to firms, Havens says. Federal law prohibits the state from disclosing the names of the companies who are underpaying the system, but the ESD plans to notify the companies of the seminars, he says.

"We can advise employers on how to better manage the system," Havens says. "Many employers aren't sufficiently acquainted with all the laws. Most, if not all, of these employers can avoid the rate increase."

Some things that employers can do to decrease the number of claims charged against them include:

* Responding quicker to an application for benefits. If a company doesn't respond to the application of a former employee for unemployment benefits by the deadline, the person is more likely to get the benefits.

* Making voluntary payments into the trust fund. If the company's payments are less than the benefits charged against it, the company can pay the difference. Last year more than 1,000 companies paid $4.8 million under the voluntary payment program. Some of the payments were less than $2.

* Reducing the number of hours an employee works as an alternative to eliminating the employee.


"We believe we have come up with the solution," Havens says.

At least one-half of the 4,000 companies underpaying the fund should be able to avoid the rate increase by making the changes, he says.

The law imposes the rate increase on companies that continue to underpay the system for the next two years. If a company pays more than the claims against it for one of the next two years, it won't have to pay the higher rate.

Companies that continue to underpay for the next four years will have their rate increased to 10.4 percent. The rate will continue at that level until the company pays more than it takes for three of four years.
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Title Annotation:Arkansas unemployment insurance fund
Author:Lovel, Jim
Publication:Arkansas Business
Geographic Code:1U7AR
Date:May 10, 1999
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