In 1935, the Unemployment Insurance Program was created by the passage of the Social Security Act. Its goal was, and is, to provide financial assistance to individuals during periods of involuntary unemployment. To fund the programs, employers are required to pay State Unemployment Insurance, or SUI, taxes to the state trust funds.
Each state operates independently, assigning employers a State Unemployment Insurance (SUI) account. These accounts record both contributions from employers and benefits paid to eligible unemployed workers and are maintained by each state’s UI program, which determines your organization’s SUI tax rate. As your only controllable tax, it is imperative to understand what impacts your SUI taxes and how you can ensure your accounts remain in compliance throughout important changes in your business, such as merger and acquisition activity.
Why Reporting Matters
It is required by all states to report any movement or activity associated with your SUI accounts. Failure to timely and accurately report these transfers could result in penalties, interest, max rate assignments plus any unpaid (SUI) contributions.
As part of the reporting process, there are decisions that your organization will need to make, and guidelines that need to be followed to ensure compliance.
What is a Transfer of Experience?
A transfer of experience refers to the act of moving historical UI rate factors from the predecessor legal entity to the successor legal entity.
Depending on the state and the structure of the transaction, these transfers may be optional or mandatory. If optional, it is important for your organization to review the financial impact and determine if the transfer would be favorable.
At Thomas & Company, we provide our clients with strategic analysis on current and future M&A activity. This will help you determine the best approach for your unemployment taxes when considering a transfer of experience.
Mandatory Vs. Optional Transfers
Transfer requirements and opportunities vary by state and are determined by several key areas.
Is this a total or partial acquisition?
Is there common ownership?
Common ownership refers to a situation where two merging or acquiring entities were connected prior to the transaction. This connection may be established through shared ownership, management, direction, control, or other factors that demonstrate a significant level of interconnection between the entities.
Are there common officers?
The answers to these questions will determine whether you are required to transfer experience (mandatory) or have a decision to make based on the data available as to whether or not a transfer would result in a favorable outcome.
Transfer Denial Risks
Some states have strict, pre-determined transfer deadlines, typically within a certain timeframe of the effective date. Failure to meet this deadline can result in denial of the requested transfer.
In certain states, a partial transfer will be denied if it is determined that the Substantially All Rule has been met. Instead of approving the partial transfer, the transaction will become a total transfer, and the successor will receive all the UI experience factors including the (SUI) tax rate.
Tell Us About It
As your trusted partner, it is important that Thomas & Company know about upcoming transactions. The more we know – and the sooner we know it – the more we are able to help you review the potential transfer(s), understand the implications, and ensure timely reporting to the state.
Your Trusted Partner in M&A Compliance
At Thomas & Company, our dedicated team of experts understands the complexities of these transformative deals and their impact across your organization. With industry-leading experience and an eye for detail, we work hand-in-hand with your team to maximize the value and potential of your business transaction(s), while ensuring compliance.
Our approach is tailored to align with your unique business needs, ensuring that each transaction enables your company’s success.
There’s More!
We’ve just touched the surface of how mergers and acquisitions impact your organization’s unemployment outlook. Be on the lookout for more important information and in the meantime, check out our previous articles on M&A activity.
