SF 607 (LSB 1022SZ (1) 91)

SENATE FILE 607

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO SF 504)
(SUCCESSOR TO SSB 1173)

A BILL FOR

An Act relating to unemployment insurance taxes on employers.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 96.1A, subsection 36, Code 2025, is amended to read as follows:
   36.  “Taxable wages” means an amount of wages upon which an employer is required to contribute based upon wages which that have been paid in this state during a calendar year to an individual by an employer or the employer’s predecessor, in this state or another state which extends a like comity to this state, with respect to employment, upon which the employer is required to contribute, which equals the greater of the following:
   a.  Sixty-six and two-thirds Thirty-three and one-third percent of the statewide average weekly wage which that was used during the previous calendar year to determine maximum weekly benefit amounts, multiplied by fifty-two and rounded to the next highest multiple of one hundred dollars.
   b.  That portion of wages subject to a tax under a federal law imposing a tax against which credit may be taken for contributions required to be paid into a state unemployment compensation fund.
    Sec. 2.  Section 96.7, subsection 2, paragraph c, subparagraphs (1) and (2), Code 2025, are amended to read as follows:
   (1)  A nonconstruction contributory employer newly subject to this chapter shall pay contributions at the rate specified in the twelfth fourth benefit ratio rank but not less than one percent until the end of the calendar year in which the employer’s account has been chargeable with benefits for twelve consecutive calendar quarters immediately preceding the computation date.
   (2)  A construction or landscaping contributory employer, as defined under rules adopted by the department pursuant to chapter 17A, which that is newly subject to this chapter shall pay contributions at the rate specified in the twenty-first ninth benefit ratio rank until the end of the calendar year in which the employer’s account has been chargeable with benefits for twelve consecutive calendar quarters.
    Sec. 3.  Section 96.7, subsection 2, paragraph d, subparagraph (1), Code 2025, is amended to read as follows:
   (1)  The current reserve fund ratio is computed by dividing the total funds available for payment of benefits, on the computation date or on August 15 following the computation date if the total funds available for payment of benefits is a higher amount on August 15, by the total wages paid in covered employment excluding reimbursable employment wages during the first four calendar quarters of the five calendar quarters year immediately preceding the computation date. However, in computing the current reserve fund ratio, beginning July 1, 2007, one hundred fifty million dollars shall be added to the total funds available for payment of benefits on each computation date. 
    Sec. 4.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (a), Code 2025, is amended by striking the subparagraph division.
    Sec. 5.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (b), Code 2025, is amended by striking the subparagraph division and inserting in lieu thereof the following:
   (b)  If the current reserve fund ratio:
Equals or            But is                     The contribution rate
 exceeds            less than                     table in effect shall be

_______________________________________________________________

   ——             0.50                           A

  0.50             0.90                           B

  0.90             1.30                          C

  1.30             ——                           D

    Sec. 6.  Section 96.7, subsection 2, paragraph d, subparagraph (2), subparagraph division (d), Code 2025, is amended by striking the subparagraph division and inserting in lieu thereof the following:
   (d)  Each employer qualified for an experience rating shall be assigned a contribution rate for each rate year that corresponds to the employer’s benefit ratio rank in the contribution rate table effective for the rate year from the following contribution rate tables. Each employer’s benefit ratio rank shall be computed by listing all the employers by increasing benefit ratios, from the lowest benefit ratio to the highest benefit ratio and grouping the employers so listed into nine separate ranks containing as nearly as possible fourteen and twenty-nine hundredths percent of the total taxable wages, excluding reimbursable employment wages, in the first six ranks, and four and seventy-six hundredths percent of the total taxable wages, excluding reimbursable employment wages, in ranks seven, eight, and nine, paid in covered employment during the four completed calendar quarters immediately preceding the computation date. If an employer’s taxable wages qualify the employer for two separate benefit ratio ranks, the employer shall be afforded the benefit ratio rank assigned the lower contribution rate. Employers with identical benefit ratios shall be assigned to the same benefit ratio rank.
      Approximate                 Contribution Rate Tables
Benefit       Cumulative
Ratio       Taxable
Rank       Payroll Limit                 A                     B                         C                             D 

__________________________________________________________

 1        14.29%                0.00                    0.00                        0.00                            0.00 

 2        28.58%                0.40                    0.30                        0.10                            0.10 

 3        42.87%                1.20                    0.80                        0.40                            0.20 

 4        57.16%                2.10                    1.40                        0.60                            0.30 

 5        71.45%                3.60                    2.40                        1.10                            0.50 

 6        85.74%                5.40                    4.10                        1.90                            0.90 

 7        90.50%                5.40                    5.40                        4.20                            2.00 

 8        95.26%                5.40                    5.40                        5.40                            2.80 

 9        100.00%                5.40                    5.40                        5.40                            5.40 

    Sec. 7.  Section 96.7, Code 2025, is amended by adding the following new subsection:
   NEW SUBSECTION.  13.  Surcharge for certain average benefit ratios.
   a.  The department shall collect a surcharge from an employer in any fiscal year in which the average of the benefit ratios of the employer for the previous three fiscal years equals or exceeds 1.250000. The surcharge shall be equal to ten percent of the contributions paid by the employer for the fiscal year. 
   b.  This subsection applies only to contributory employers and only if such employers are no longer subject to subsection 2, paragraph “c”, subparagraph (1) or (2).
   c.  The department shall adopt rules pursuant to chapter 17A prescribing the manner in which the surcharge will be collected. Interest shall accrue on all unpaid surcharges under this subsection at the same rate as on regular contributions and shall be collectible in the same manner. The surcharge shall not affect the computation of regular contributions under this chapter. All contributions collected from the surcharge shall be deposited in the unemployment compensation fund.
    Sec. 8.  EMPLOYER SAVINGS.  Any savings an employer receives as a result of this Act should be used for at least one of the following purposes:
   1.  To pay for employee salaries or benefits.
   2.  To use as an alternative to unemployment benefits during periods of seasonal unemployment.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to unemployment insurance taxes on employers.
   The bill modifies the definition of “taxable wages” by eliminating the wages paid to an employee from another state from the calculation of wages upon which an employer is required to contribute to the unemployment compensation fund (fund) when the other state extends a like comity (reciprocity) to Iowa for employment purposes.
   Under current law, the calculation of taxable wages upon which an employer is required to contribute to the fund is the greater amount of the two amounts calculated pursuant to paragraphs “a” and “b” under Code section 96.1A(36). The bill changes the calculation of one these amounts under paragraph “a” by reducing the percentage of statewide average weekly wage used in the calculation from 66.66 percent to 33.33 percent of the statewide average weekly wage used during the previous calendar year, which is then multiplied by 52 and rounded to the nearest $100 to determine maximum weekly benefit amounts.
   The amount in paragraph “a” as calculated under the bill would be the amount used to calculate taxable wages upon which an employer is required to contribute to the fund if that amount exceeds the amount in paragraph “b” under Code section 96.1A(36).
   The calculation of the unemployment contribution rate each year is a dynamic calculation dependent upon the calculation of the current reserve ratio, the benefit ratio rank, and the contribution rate table in effect for the rate year. The bill changes the current reserve ratio calculation, the number of benefit ratio ranks, the contribution rates, and the contribution rate table.
   The current reserve ratio (calculation of available benefit amount in fund) determines the contribution rate table in effect for the rate year following the computation date. The bill changes the computation of the current reserve fund ratio in Code section 96.7(2)(d)(1) by basing the calculation of the ratio on the preceding year rather than the previous five calendar quarters, and strikes the requirement that $150 million be added on the reserve ratio computation date to the total funds available for benefits. The bill also strikes the computation of the highest cost-benefit ratio and removes the ratio from the computation of the current reserve ratio.
   The bill modifies the contribution rate table by reducing the number of possible rate tables that could be in effect for the rate year from eight contribution rate tables to four contribution rate tables. Under the bill and current law, only one contribution rate table may be in effect per rate year. In reducing the number of possible contribution rate tables from eight to four, the bill also changes the numbered contribution rate designations to lettered contribution rate designations.
   Under current law, there are 21 benefit ratio ranks in the contribution rate tables. The benefit ratio is a calculation based upon the average number of unemployment benefits charged to an employer over previous calendar quarters. The higher the benefits charged to an employer, the higher the benefit ratio rank the employer receives. The bill reduces the number of benefit ratio ranks from 21 to 9.
   Under current law, each of the ratio ranks constitutes 4.76 percent of total taxable wages. The bill groups the benefit ratio ranks differently by separating each of the first six benefit ratio ranks by 14.29 percent of total taxable wages, and separates the last three benefit ratio ranks by 4.76 percent of total taxable wages.
   Under current law, the highest contribution rate that corresponds with the highest benefit ratio rank is 9.0 percent. Under the bill, the highest contribution rate that corresponds with the highest benefit ratio rank is 5.40 percent.
   As a result of the bill, each employer will be assigned one of the nine new benefit ratio ranks that corresponds with one of the four new lettered contribution rate designations in effect for the rate year to determine the contribution rate for the year.
   The bill requires the department of workforce development to collect from an employer a surcharge for deposit in the unemployment compensation fund in any fiscal year in which the average of the benefit ratios of the employer for the previous three fiscal years equals or exceeds 1.25. The surcharge shall be equal to 10 percent of the contributions paid by the employer for the fiscal year. The surcharge only applies to contributory employers and only to such employers who are no longer assigned to benefit ratio ranks based on being newly subject to Code chapter 96.
   The bill provides that any savings an employer receives as a result of the bill should be used for at least one of the purposes specified in the bill. The specified purposes are to pay for employee salaries or benefits or to use as an alternative to unemployment benefits during periods of seasonal unemployment.