24. Unemployment Compensation and Workers Compensation

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1 Financial and Education Law Training Program Page Unemployment Compensation and Workers Compensation Introduction Unemployment Compensation (UC) programs can trace their roots back to Europe. Private employers in this country adopted the European programs to match the needs of their employees. Eventually, during the depression, the federal government established a program of public UC offices throughout the fifty states, Washington DC, Puerto Rico, and the Virgin Islands. Unemployment insurance provides workers, whose jobs have been terminated through no fault of their own, monetary payments for a given period of time or until they find a new job. Unemployment payments (compensation) are intended to provide an unemployed worker time to find a new job equivalent to the one lost without financial distress. Without employment compensation many workers would be forced to take jobs for which they were overqualified or end up on welfare. Unemployment compensation is also justified in for sustaining consumer spending during periods of economic adjustment. In the United States, unemployment insurance is based on a dual program of federal and state statutes. The program was established by the federal Social Security Act in Much of the federal program is implemented through the Federal Unemployment Tax Act. Each state administers a separate unemployment insurance program, which must be approved by the Secretary of Labor, based on federal standards. The state programs are explicitly made applicable to areas normally regulated by laws of the U.S. There are special federal rules for nonprofit organizations and governmental entities. Which employees are eligible for compensation, the amount they receive, and the period of time benefits are paid are determined by a mix of federal and state law. To support the unemployment compensation systems a combination of federal and state taxes are levied upon employers. State employer contributions are normally based on the amount of wages they have paid, the amount they have contributed to the unemployment fund, and the amount that their discharged employees have been compensated with from the fund. Any state tax imposed on employers (and certain credits on that tax) may be credited against the federal tax. The proceeds from the unemployment taxes are deposited in an Unemployment Trust Fund (the Fund). Each state has a separate account in the Fund to which deposits are made. Within the fund there are separate accounts for state administrative costs and extended unemployment compensation. During economic recessions the federal government has provided emergency assistance to allow states to extend the time for which individuals can receive benefits. This is accomplished by passing a temporary law authorizing the transfer of money to a state from its Extended Unemployment Account. The ability of a state to tap into this emergency system is usually dependent on the

2 Financial and Education Law Training Program Page 24-2 employment rate reaching a designated percentage within the state or the nation. Purpose In general, the Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under State law), and meet other eligibility requirements of State law. Unemployment insurance payments (benefits) are intended to provide temporary financial assistance to unemployed workers who meet the requirements of State law. Each State administers a separate unemployment insurance program within guidelines established by Federal law. Eligibility for unemployment insurance, benefit amounts and the length of time benefits are available are determined by the State law under which unemployment insurance claims are established. Federal Unemployment Tax Act (FUTA) The State and the political subdivisions within the State are exempt from paying the federal tax under the Federal Unemployment Tax Act (FUTA). However, State and local government employees, with certain exceptions, must be covered for state unemployment insurance purposes. Each State must determine whether an individual is an employee or independent contractor. Department of Industrial Relations The Alabama State Department of Industrial Relations has the statutory authority to administer all labor laws and all laws relating to the relationship between employer and employee, including laws relating to hours of work, and working conditions in places of employment (Acts of Alabama, 1975, Section ). There is an operational division of the Department of Industrial Relations statutorily charged with the administration of this program. A special fund has been set up to receive contributions and to pay claims for the Alabama Unemployment Compensation Program: There shall be as a special fund, separate and apart from all public moneys or funds of this state, an unemployment compensation trust fund, which shall be administered by the director exclusively for the purposes of this chapter without liability on the part of the state beyond the amounts paid into and earned by the fund. This fund shall consist of: (1) All contributions paid in or collected under this chapter; (2) Interest earned upon any moneys in the fund; (3) Any property or securities acquired through the use of moneys belonging to the fund; (4) All earnings of such property or securities; (5) Any money received from the federal unemployment account in the

3 Financial and Education Law Training Program Page 24-3 unemployment trust fund in accordance with Title XII of the Social Security Act; (6) All money credited to this state's account in the unemployment trust fund pursuant to Section 903 of the Social Security Act, as amended; and (7) All money received for the fund from any other source (Code of Alabama 1975, Section ). Employer money payments to the state unemployment compensation fund are made is one of two ways: Contributions; payments in lieu of contributions. (a) "Contributions," as used in this chapter, means the money payments to the state unemployment compensation fund, required by this chapter, on the basis of a percentage of wages. (b) "Payments in lieu of contributions," as used in this chapter, means the money payments to the state unemployment compensation fund, required by this chapter, from employers who reimburse the fund for the amount of regular benefits and extended benefits paid that is attributable to service in the employ of such employers as is required by this chapter (Code of Alabama 1975, Section ). Procedure for Local Boards of Education The procedure that is employed for local boards of education is the governmental reimbursing method. This method requires advance payments based upon the benefit cost for the qualifying period. Prior to April 1 of each year, an advance payment rate is computed for each local governmental employer, including local boards of education. This rate becomes effective the following October 1 for a period of four consecutive calendar quarters or the state fiscal year. This information is contained in Form UC 216A. The advance payment is so named because payments are based upon prior experience and paid in advance of current experience. The rate is computed by dividing the benefit cost attributable to the employer into the employer s total covered payroll for the same period. The percentage thus derived is the advance payment rate. The amount of the advance payment is computed by multiplying the advance payment rate by the employer s average quarterly payroll for the preceding calendar year. The law permits adjustments to increase or decrease advance payments to minimize underpayments or excess payments. Form CR 4G is forwarded to the local board of education approximately ten days prior to the end of a quarter and is to be returned with the advance payments by the due date which is the tenth day of the month following the end of the quarter. After September 30, the reimbursing account of each local board of education will be examined to determine whether the advance payments have equaled the benefit payment made and charged to their account. If found to be less than the benefit cost, a debit will be issued. The debit must be paid within 20 days from the date of mailing. If

4 Financial and Education Law Training Program Page 24-4 payments exceed benefit costs, a credit, Form UC 29G, will be issued which may be applied to subsequent payments. An outstanding credit will be refunded, if requested. Example 1: Example 2: Consider the following examples of computing an advance payment rate: 2000 Total Covered Payroll $1,200, Total Benefit Costs $7, Thus $7,200.00/$1,200,00.00 equals or 0.6% 2000 Total Covered Payroll $1,200, Total Benefit Costs $24, Thus $24,000.00/$1,200,00.00 equals 0.02 or 2.0% The Unemployment Compensation advance payment rate for each local board of education is found in Appendix 24-1 following this section. The rates are compared for each local board of education with the rate used in the calculation of the 1995 Foundation Program for FY Obliviously, if the local board rate is greater than the 0.125% used in calculating and allocating unemployment compensation funding, the local board of education must supplement the quarterly payment from local funds. If the local board rate is less than the 0.125% used in calculating and allocating unemployment compensation funding, the local board of education can use the excess funding to apply toward unemployment compensation cost of employees paid from local funds. Under or Over Payment The Department of Industrial Relations uses the advance payment rate established for the fiscal year to multiple times the quarterly covered payroll for the calendar year. This payment is debited as a Prepaid Item. As the monthly payroll is processed, the unemployment compensation generated is deposited and credited back against the prepaid account. As of September 30 of each fiscal year, the Department of Industrial Relations performs an analysis of advance payment accounts of each local board of education and sends a Credit Memorandum if a local board has made an overpayment to the Unemployment Compensation Trust Form on From CR-4G. Or if the local board needs to pay an additional amount, a Debit Memorandum is transmitted. If the local board has made advance payments which exceed the actual benefit cost, the board may apply for a credit against future payments or ask for a refund. Workers Compensation

5 Financial and Education Law Training Program Page 24-5 The Alabama State Department of Industrial Relations has the statutory authority to administer all labor laws and all laws relating to the relationship between employer and employee, including laws relating to hours of work, and working conditions in places of employment (Code of Alabama 1975, Section ). One of these programs is workers' compensation, insurance that you as an employer are required by law to carry to help employees injured on the job or becoming ill due to their job. Administration of this program is by the Workers Compensation Division. The main function of the Workers Compensation Division is to insure that necessary medical attention and compensation benefits are provided to employees injured on the job, or in case of death, provided to their dependents. Workers Compensation also provides information and service to the following: claimants, employers, insurance companies, attorneys, judges, legislators, labor and management groups, government agencies, and other parties. Other functions include the following: gathering accident statistics, enforcing reporting requirements, monitoring claim payments, auditing all claim settlements, and taking corrective action on incorrect settlements or improper reporting procedures. Another responsibility is gathering information on fraudulent claims, which includes responding to tips received on the fraud hotline number: (1-800-WC-FAKED). Ombudsmen mediate disputes through the benefit review conference process. Requests for information/assistance, which concerned either the law or specific medical topics, are the most frequent issues. The ombudsmen also provide assistance to employees, employers, attorneys, insurance carriers, and thirdparty administrators, via telephone, seminars, and speaking engagements. Workers Compensation conducts employer inspections for compliance with the Workers Compensation Law. The division offers both a formal and informal medical dispute resolution process for any party that may dispute a medical service that has been conducted or that is requested. Local Boards of Education Required to be Covered, 1984 State requires that local boards of education provide workers compensation coverage to its employees: (a) This chapter shall be applicable to the employees of all counties and all municipalities having populations greater than 2,000 according to the most recent federal decennial census, and shall govern in their employment. This chapter shall be applicable also to the employees of all county and city boards of education, the Alabama Institute for the Deaf and Blind, and all employees of the two-year colleges under the control of the State Board of Education, and shall govern in their employment. The employees of all school systems and institutions, counties, and each municipality covered under this section shall have available to them all the rights and remedies provided under this chapter.

6 Financial and Education Law Training Program Page 24-6 The governing bodies of all school systems and institutions, counties, and of each municipality covered under this section shall file all necessary employer reports and notices required at the times and in the manner prescribed in this chapter. (b) Notwithstanding subsection (a) of this section, this chapter shall not apply to any city (excepting school districts and institutions) which has a population of 250,000 or more according to the last or any subsequent decennial federal census, to any park and recreation board now or hereafter established for those cities, to any board or agency now or hereafter authorized and established by the governing body of those cities, nor to employees of the city or of any board or agency (Code of Alabama 1975, Section ). Local Boards Granted Exemption: This statute was amended by Act , which also contained the escape clause for local boards of education but provided for implementation by local boards under a local option decision from local funds: The provisions of this act shall become effective on August 15, 1984, provided, however, the provisions of this amendatory act shall not be in effect until sufficient funds are appropriated from the special educational trust fund to implement said provisions; and further provided that nothing contained herein shall prohibit any school board that voluntarily elects from doing so with local or other available funds (Acts of Alabama 1984, Act ). This statute provisions was codified as follows: (c) This section shall not be construed to mandate any school board to provide coverage until sufficient funds are appropriated from the Education Trust Fund to implement the provisions. Nothing contained herein shall prohibit any school board that voluntarily elects to provide such coverage from doing so with local or other available funds (Code of Alabama 1975, Section ). Types of Coverage Available to Local Boards of Education If you have more than four (4) employees, full-time or part-time and including officers of a corporation, the Alabama Workers' Compensation Law requires you to have workers' compensation insurance coverage. Employers of domestic employees, farm laborers, or casual employees and municipalities having a population of less than 2,000 (according to the most recent federal census) are not required to provide coverage but can elect to be covered by the provisions of the Alabama Workers' Compensation Law.

7 Financial and Education Law Training Program Page 24-7 There are five optional ways to cover your workers' compensation liability as outlined in Section , Code of Alabama OPTION (1) - Commercial Insurance - Voluntary Market DESCRIPTION: You can purchase an approved insurance policy through a licensed insurance agent underwritten by an approved insurance carrier who will write an insurance policy for you. This is known as purchasing insurance coverage on the "voluntary market." CANDIDATES: Any employer who has a low to medium workers' compensation exposure or claim history. SOURCES: Purchased through your insurance agent. ADVANTAGES: Recognized by the State Courts. Provides an approved policy at a reasonable price that is guaranteed by the Alabama Insurance Guaranty Association. Your choice of buying from the insurance carrier with the most competitive rates. DISADVANTAGES: Insurance carrier determines whether or not to renew your policy. You are subject to rate increases. COMMENTS: The Alabama Department of Insurance approves all insurance carriers, their policies and the agents who represent them. A directory containing the names and addresses of approved insurance carriers can be obtained from the Insurance Department. OPTION (2) - Commercial Insurance - Assigned Risk Pool DESCRIPTION: You can purchase insurance through the Assigned Risk Pool when insurance carriers decline to write an insurance policy for you. This is known as purchasing insurance coverage on the "involuntary market." CANDIDATES: Any employer who has a medium to high workers' compensation exposure or claim history. SOURCES: Administered by the National Council on Compensation Insurance (NCCI). Purchased through your insurance agent. ADVANTAGES: Provides an approved policy that is recognized by the State Courts and is guaranteed by the Alabama Insurance Guaranty Association. DISADVANTAGES: High cost. No choice of insurance carrier. Subject to rate increases.

8 Financial and Education Law Training Program Page 24-8 COMMENTS: You must contact and be refused by two insurance carriers and make direct application to the NCCI Assigned Risk Pool through your insurance agent providing proof that the insurance carriers turned you down. Insurance carriers participating in the Assigned Risk Pool have been approved by the Alabama Department of Insurance. OPTION (3) - Group Self-Insurance. DESCRIPTION: You can obtain coverage by joining a group self-insurance fund. This is a common fund into which employers have, by agreement, pooled their liabilities for the purpose of providing Alabama workers' compensation benefits to their employees. CANDIDATES: Any employer who is willing to enter into an agreement to pool their workers' compensation liabilities and who meets the underwriting requirements set forth by the Fund. SOURCES: Purchased through your independent insurance agent or by contacting the Group Fund Administrator. ADVANTAGES: Recognized by the State Courts. Approved and regulated by the Alabama Department of Industrial Relations. Provides workers' compensation liability coverage at a reasonable price. Choice of joining with a variety of Funds. Attractive rates. DISADVANTAGES: The Fund determines whether or not to renew your membership. Not guaranteed by the Alabama Insurance Guaranty Association, but some are covered by the Alabama Workmen's Compensation Self-Insurers Guaranty Association. Subject to rate increases. In the event that the Fund becomes insolvent, you can be assessed to make up the monetary shortages (this is known as Joint & Several liability). COMMENTS: The names, addresses and telephone numbers of most approved group self-insurance funds can be obtained from the Workers' Compensation Division of the Department of Industrial Relations or you can call the Self- Insurance Section at and request the name of the most appropriate group fund for your class or business. OPTION (4) - Individual Self-Insurance DESCRIPTION: You can become a self-insurer. This is a long-term commitment by which a financially strong employer pays benefits to injured employees as mandated by the Alabama Workers' Compensation Law. CANDIDATES: Any employer who meets the following four financial

9 Financial and Education Law Training Program Page 24-9 qualifications: (1) audited financial statements; (2) a $5 million minimum net worth; (3) current assets to current liabilities ratio of 1.0 or greater; and (4) a positive net income. You may conduct a feasibility analysis to determine if it is cost effective for you to self-insure. SOURCES: You can also obtain an individual self-insurance packet by writing to the Department of Industrial Relations Workers' Compensation Division, 649 Monroe St., Montgomery, Alabama 36131, or speak to an employee in the Self- Insurance Section at , or contact an insurance agent that specializes in the field of self-insurance. ADVANTAGES: Recognized by the State Courts. Hands-on management of claims, legal issues and safety programs. DISADVANTAGES: Long-term liability due to lifetime medical benefits mandated by Law. COMMENTS: Cost considerations include assessments, fees, taxes, excess insurance limits and retention, cost of the claim servicing organization, payments to the injured workers, litigation, consultation, membership in Alabama Workers' Compensation Self Insured Guaranty Association, safety and loss control and exposure to un-funded losses of incurred but not reported claims. Individual selfinsurance is regulated by the Alabama Department of Industrial Relations. OPTION (5) - Alternative Workers' Compensation Plans DESCRIPTION: This is commercial insurance purchased on the voluntary market. The policy may consist of any combination of life, disability, accident, health or other insurance, provided that the coverage's insure without limitation or exclusion any of the workers' compensation benefits as defined in the Law of this state. CANDIDATES: Generally, any employer who has a low to medium workers' compensation exposure or claim history. SOURCES: You can purchase an approved alternative insurance policy from a licensed agent who represents the alternative workers' compensation insurance carrier and who will write an insurance policy for you. ADVANTAGES: Regulated by the Alabama Department of Insurance. Provides an approved policy at a reasonable price. Your choice of buying from the insurance carrier with the most competitive rates. DISADVANTAGES: Insurance carrier determines whether or not to renew your policy. Alternative coverage is a new provision in the Workers' Compensation Law that is untested in the courts. It is unclear which Guaranty Association(s)

10 Financial and Education Law Training Program Page will guarantee alternative policies in the event of an insolvent insurance carrier. COMMENTS: This coverage is purchased in the "voluntary market." The Alabama Department of Insurance approves all insurance carriers, their policies and the agents who represent them. A directory containing the names and addresses of approved insurance carriers can be obtained from the Insurance Department. Appendices Which Follow 24. Unemployment Compensation and Workers Compensation 1. Unemployment Compensation Rates for October 1, 2004 to September 30, 2005

11 Financial and Education Law Training Program Page Appendix 24-1 Unemployment Compensation Rates for FY Number System ID System UC Rate Appropriation Rate Variance Autauga County 0.020% 0.125% 0.105% Baldwin County 0.040% 0.125% 0.085% Barbour County 0.340% 0.125% % Bibb County 0.070% 0.125% 0.055% Blount County 0.060% 0.125% 0.065% Bullock County 0.160% 0.125% % Butler County 0.150% 0.125% % Calhoun County 0.180% 0.125% % Chambers County 0.100% 0.125% 0.025% Cherokee County 0.070% 0.125% 0.055% Chilton County 0.070% 0.125% 0.055% Choctaw County 0.080% 0.125% 0.045% Clarke County 0.130% 0.125% % Clay County 0.080% 0.125% 0.045% Cleburne County 0.130% 0.125% % Coffee County 0.040% 0.125% 0.085% Colbert County 0.100% 0.125% 0.025% Conecuh County 0.320% 0.125% % Coosa County 0.180% 0.125% % Covington County 0.060% 0.125% 0.065% Crenshaw County 0.080% 0.125% 0.045% Cullman County 0.030% 0.125% 0.095% Dale County 0.000% 0.125% 0.125% Dallas County 0.190% 0.125% % DeKalb County 0.060% 0.125% 0.065% Elmore County 0.090% 0.125% 0.035% Escambia County 0.080% 0.125% 0.045% Etowah County 0.080% 0.125% 0.045% Fayette County 0.060% 0.125% 0.065% Franklin County 0.110% 0.125% 0.015% Geneva County 0.170% 0.125% % Greene County 0.220% 0.125% % Hale County 0.040% 0.125% 0.085% Henry County 0.090% 0.125% 0.035% Houston County 0.080% 0.125% 0.045% Jackson County 0.050% 0.125% 0.075% Jefferson County 0.060% 0.125% 0.065% Lamar County 0.040% 0.125% 0.085% Lauderdale County 0.060% 0.125% 0.065% Lawrence County 0.250% 0.125% % Lee County 0.050% 0.125% 0.075% Limestone County 0.050% 0.125% 0.075% Lowndes County 0.350% 0.125% % Macon County 0.110% 0.125% 0.015% Madison County 0.070% 0.125% 0.055% Marengo County 0.170% 0.125% % Marion County 0.020% 0.125% 0.105% Marshall County 0.170% 0.125% % Mobile County 0.070% 0.125% 0.055% Monroe County 0.080% 0.125% 0.045% Montgomery County 0.200% 0.125% % Morgan County 0.060% 0.125% 0.065% Perry County 0.150% 0.125% % Pickens County 0.280% 0.125% % Pike County 0.030% 0.125% 0.095% Randolph County 0.030% 0.125% 0.095% Russell County 0.250% 0.125% % Saint Clair County 0.040% 0.125% 0.085% Shelby County 0.030% 0.125% 0.095% Sumter County 0.440% 0.125% % Talladega County 0.110% 0.125% 0.015% Tallapoosa County 0.060% 0.125% 0.065% Tuscaloosa County 0.040% 0.125% 0.085% Walker County 0.030% 0.125% 0.095% Washington County 0.140% 0.125% % Wilcox County 0.050% 0.125% 0.075% Winston County 0.120% 0.125% 0.005%

12 Financial and Education Law Training Program Page Appendix 24-1 (Continued) Unemployment Compensation Rates for FY Number System ID System UC Rate Appropriation Rate Variance Albertville City 0.060% 0.125% 0.065% Alexander City 0.040% 0.125% 0.085% Andalusia City 0.060% 0.125% 0.065% Anniston City 0.330% 0.125% % Arab City 0.060% 0.125% 0.065% Athens City 0.030% 0.125% 0.095% Attalla City 0.020% 0.125% 0.105% Auburn City 0.050% 0.125% 0.075% Bessemer City 0.210% 0.125% % Birmingham City 0.250% 0.125% % Brewton City 0.060% 0.125% 0.065% Cullman City 0.070% 0.125% 0.055% Daleville City 0.070% 0.125% 0.055% Decatur City 0.050% 0.125% 0.075% Demopolis City 0.140% 0.125% % Dothan City 0.050% 0.125% 0.075% Elba City 0.000% 0.125% 0.125% Enterprise City 0.050% 0.125% 0.075% Eufaula City 0.060% 0.125% 0.065% Fairfield City 0.150% 0.125% % Florence City 0.140% 0.125% % Fort Payne City 0.100% 0.125% 0.025% Gadsden City 0.080% 0.125% 0.045% Geneva City 0.060% 0.125% 0.065% Guntersville City 0.070% 0.125% 0.055% Haleyville City 0.050% 0.125% 0.075% Hartselle City 0.010% 0.125% 0.115% Homewood City 0.070% 0.125% 0.055% Hoover City 0.060% 0.125% 0.065% Huntsville City 0.050% 0.125% 0.075% Jacksonville City 0.050% 0.125% 0.075% Jasper City 0.010% 0.125% 0.115% Lanett City 0.190% 0.125% % Linden City 0.000% 0.125% 0.125% Madison City 0.070% 0.125% 0.055% Midfield City 0.020% 0.125% 0.105% Mountain Brook City 0.040% 0.125% 0.085% Muscle Shoals City 0.070% 0.125% 0.055% Oneonta City 0.050% 0.125% 0.075% Opelika City 0.080% 0.125% 0.045% Opp City 0.110% 0.125% 0.015% Oxford City 0.040% 0.125% 0.085% Ozark City 0.060% 0.125% 0.065% Pell City 0.110% 0.125% 0.015% Phenix City 0.120% 0.125% 0.005% Piedmont City 0.050% 0.125% 0.075% Roanoke City 0.150% 0.125% % Russellville City 0.020% 0.125% 0.105% Scottsboro City 0.050% 0.125% 0.075% Selma City 0.280% 0.125% % Sheffield City 0.010% 0.125% 0.115% Sylacauga City 0.110% 0.125% 0.015% Talladega City 0.210% 0.125% % Tallassee City 0.050% 0.125% 0.075% Tarrant City 0.100% 0.125% 0.025% Thomasville City 0.030% 0.125% 0.095% Troy City 0.010% 0.125% 0.115% Tuscaloosa City 0.210% 0.125% % Tuscumbia City 0.060% 0.125% 0.065% Vestavia Hills City 0.030% 0.125% 0.095% Winfield City 0.170% 0.125% % Unweighted Average 0.098% 0.125% 0.027% Leeds City n/a 0.125% n/a Alabama School of Fine Arts 0.220% 0.125% % 131 SDE Department of Education 0.080% 0.125% 0.045%