SMALL BUSINESS
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RESEARCH SUMMARY
United States Small Business Administration
Office of Advocacy
RS 171
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State Unemployment Compensation and Workers'
Compensation Programs: A Review of Major Legislative Changes,
Program Costs and Suggested Reforms
by the National Foundation for Unemployment Compensation
and Workers' Compensation
1996. 159p. The National Foundation for Unemployment
Compensation and Workers' Compensation, 1331 Pennsylvania Ave.,
N.W., Washington, D.C. 2004-1703, under award no. SBA-HQ-95-M-0595
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Purpose
State unemployment compensation and workers' compensation programs
are intended to insure against the interruption of income due
to the loss of a job, either because of temporary layoff or inability
to work as a result of an injury or illness in connection with
work. The objective of this study is to identify both "cost-driver"
and "desirable" provisions of the two programs that
can significantly affect employer costs. Wherever possible, the
study highlights issues that specifically apply to small businesses.
The discussion of "cost-driver" provisions--provisions
that drive costs up--is intended to help small employers in their
efforts with state legislators to enact needed program reforms.
The discussion of "desirable" provisions--provisions
designed to reduce or contain escalating costs while continuing
to provide reasonable benefits and coverage for worker--is intended
to help small employers, in particular, evaluate specific provisions
that could be included in a state's unemployment compensation
and workers' compensation laws.
Scope and Methodology
The National Foundation for Unemployment Compensation
and Workers' Compensation, founded in 1984, was established to
collect data, conduct research, and analyze current issues relating
to unemployment compensation and workers' compensation.
The Foundation has researched the provisions of each state's unemployment
compensation and workers' compensation laws and reviewed all major
legislative changes affecting these programs since 1984. A state-by-state
summary of such changes occurring for the four-year period 1990-1993
is provided in this report. The Foundation's suggested "desirable"
provisions are the result of this analysis.
For each state, the "total cost" of benefit payments
is reported for each program for the last 10 years for which data
are available (1984-1993). Unfortunately, the data do not enable
the Foundation to isolate the cost impact for small employers.
On the basis of total cost data, calculations were made of average
cost per covered employee for each state in each year for each
program. To provide another measure in evaluating the impact
of state legislative changes, the Foundation computed the average
cost rate (total benefit payments as a percent of total covered
wages) by state for each year. To the extent possible, the Foundation
has identified the correlation of the cost impact of major legislative
enactments for each program in selected states.
Highlights
- Over the years, states have expanded mandatory coverage provisions
to include virtually all employees and employers. The expansion
of coverage has resulted in many complex and costly problems,
particularly for small employers. In fact, providing this mandated
coverage represents a substantial cost of doing business in many
states.
- In addition to the cost of providing the insurance coverage,
many small employers often have difficulty understanding the many
confusing requirements in the different state laws, including
record keeping and reporting.
- In most cases, legislative efforts have not focused on small
business issues. Many issues addressed are intended to benefit
all employers (large and small) and improve the overall performance
of the programs.
- Major legislative changes deal with benefit levels, eligibility
provisions, and the conditions under which benefits are to be
paid. For workers' compensation programs, issues related to medical
care have been the focus of many legislative changes because medical
care has been a major contributor to the increased workers' compensation
costs for employers.
- During the years 1990 to 1993, many changes were made to state
unemployment compensation programs. In 1990, the Colorado legislature
added a definition for "temporary help contracting firm."
It also provided that employees of such a firm will be eligible
for unemployment benefits if they contact the agency for reassignment
immediately upon completion of a previous assignment and are not
reassigned within five working days. Also in 1990, Kansas required
that in employee leasing situations the leasing operation is required
to make unemployment compensation contributions. In 1992 New
Jersey reduced its unemployment insurance tax to 0.4 percent of
taxable payroll, saving employers $200 million annually.
- Concerning workers' compensation laws, Connecticut in 1993
passed legislation requiring employers with 25 or more employees
to have a labor-management safety committee. It also made it
a D-class felony for an employer, knowingly and with intent to
defraud, to misrepresent employees as independent contractors
or provide false information to an insurance company in order
to pay lower workers' compensation premiums. Other states also
enacted workers' compensation changes.
- Other issues receiving attention by many state legislatures
include disqualification provisions, improved program administration/oversight,
and more efficient ways of allocating costs equitably among employers
(experience rating and/or broader choices for purchasing workers'
compensation insurance).
- One issue that has received considerable attention by state
legislatures deals with the availability of workers' compensation
insurance coverage for smaller employers. Several states have
expanded availability of self-insurance, including group self-insurance.
(The study includes findings from a recent report on the availability
of, and requirements for, group self-insurance among the states.)
- In 1993, three of the four states ranked highest by average
unemployment compensation benefit cost per employee were in the
Northeast: New Jersey, Rhode Island, and Connecticut. The highest
ranked was Alaska. For workers' compensation, the highest ranked
states were Nevada, West Virginia, Montana and Maine--states with
a high concentration of extractive industries.
- Based on the average cost rate, the four highest ranked states
for unemployment compensation were Puerto Rico, Rhode Island,
Alaska, and Washington. For workers' compensation, the four highest
ranked states were Montana, Nevada, West Virginia, and Maine--the
same states identified using benefit cost per employee as a measure.
Conclusion
The Foundation has attempted to identify the most important provisions
in states' unemployment compensation and workers' compensation
laws that can significantly affect costs to employers. This information
will prove helpful to small employers in determining the kinds
of cost-saving legislative changes they might want to present
to their state legislators.
Ordering Information
The complete report is available from:
National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield VA 22161
(703) 487-4650
(703) 487-4639 (TDD)
Order number: PB96-193396
Cost: A09; A02 Microf.
*Last Modified 6-11-01