Unemployment Insurance Tax (FUTA/SUTA): Pennsylvania

The below content should be reviewed in conjunction with the in-depth federal coverage of this topic provided above.

Author: Vicki M. Lambert, The Payroll Advisor

Summary

• Pennsylvania uses a modified ABC Test to determine who is an employee for state unemployment insurance (SUI) tax purposes. See ABC Test.
• The law defines wages for SUI purposes as all compensation for personal services, including salaries, commissions, bonuses, and the cash value of all compensation paid in any medium other than cash. The annual total SUI tax rate is based on a range of rates and several additional charges. Employers and employees contribute into the unemployment system. See SUI Taxable Wages; Contribution Rates.
• The Pennsylvania anti-SUTA dumping law mirrors the federal SUTA Dumping Prevention Act to a certain extent. Under state law, employers that transfer their experience rates to other employers in an attempt to obtain lower tax rates are liable for serious penalties. See SUTA Dumping.
• The state permits employers to make voluntary contributions to improve their reserve balances for a year. See Voluntary Contributions; Joint or Combined Accounts.
• An employer that is required to make unemployment insurance contributions must file quarterly reports. In addition, employers that operate more than one establishment in Pennsylvania may voluntarily submit Multiple Worksite Reports. See Quarterly Reporting Requirements; Multiple Worksite Reporting.
• All employers in Pennsylvania must maintain records for each employee for four years and keep them available for inspection by the state Department of Labor. See Recordkeeping Requirements.

ABC Test

Pennsylvania uses a modified ABC test to determine whether an employee is covered for unemployment insurance. Under Pennsylvania's ABC test, an employee is covered for unemployment insurance unless:

1. The individual has been and will continue to be free from control or direction over the performance of services; and
2. The individual is customarily engaged in an independently established trade, occupation, profession or business. +43 P.S. § 753(l)(2)(B).

SUI Taxable Wages

Compensation includes salaries, wages, commissions, bonuses, overtime pay, incentive awards, tips, and the cash value of noncash payments. This includes the following payments:

• Board and lodging furnished to an employee by an employer;
• Noncash awards such as sales prizes and free trips;
• Severance pay;
• Transportation benefits;
• Sick or accident disability payments made by an employer or third party; and
• Vacation pay.

The following payments are not considered taxable wages:

• The employer's share of contributions to a fund under a plan or system of retirement, supplementation of unemployment benefits and life insurance (including § 401(k) plan contributions made by the employer);
• Sickness or accident disability payments received under Workers' Compensation laws; and
• Payments made to an employee who is serving in the military and not performing any services for the employer.

+43 P.S. § 753(l)(2)(B).

Taxable Wage Base

The taxable wage base for 2013 is $8,500 (was $8,000 in 2012). It will increase again to: $8,750 on 1-1-14; $9,000 on 1-1-15; $9,500 on 1-1-16; $9,750 on 1-1-17; and to $10,000 for 1-1-18 and thereafter. S.B. 1310, L. 2012. The taxable wage base applies only to employers' contributions. Employees pay contributions based on their gross wages. +43 P.S. § 753(l)(2)(B).

Contribution Rates

Employer Contributions

By December 31 of each year, employers are mailed Contribution Rate Notice (Form UC-657) showing the rate effective for the following year. Different rates apply to new non-construction employers and new construction employers. Employers may also be required to pay a surcharge adjustment, an additional contribution, and an interest factor tax to retire interest on federal loans. +43 Pa. Stat. Ann. § 781.

Employee Contributions

In Pennsylvania, employees also make SUI contributions which are withheld from their pay (.07% of gross wages in 2013). There is no taxable wage base for employees' contributions. Employers must withhold employees' contributions on the basis of the employers' regular payroll periods. Employees' contributions are carried out to three decimal places, rounding to the nearest whole cent. +43 Pa. Stat. Ann. § 781.

Experience Rating Method

Pennsylvania is a reserve ratio and benefit ratio state. The reserve ratio measures an employer's lifetime unemployment risk. The reserve ratio is determined by dividing the balance in the employer's reserve account by the employer's average taxable payroll for the three 12-month periods ending on the computation date. The computation date is the June 30 preceding the year for which the rate is being calculated. This ratio is cross referenced to a table that shows the employer's Reserve Ratio Factor. The employer's Reserve Ratio Factor is identified in block K of the Contribution Rate Notice (Form UC-657).

The benefit ratio factor is a short termcomparison of the employer's taxable payroll and unemployment benefit charges. This factor is determined by dividing the employer's average benefit costs for the three 12-month periods ending on the computation date by the employer's average payroll for the same three periods. The benefit ratio factor is identified in block L of the Contribution Rate Notice (Form UC-657).

Employer's Reference Guide to Unemployment Compensation (Rev. 3/06).

SUTA Dumping

The Pennsylvania anti-SUTA dumping law mirrors the federal SUTA Dumping Prevention Act to the extent that predecessor employers cannot transfer their experience rates to successors under the following two circumstances:

• The predecessor transfers some, or all, of its workforce to a successor in which it directly or indirectly has an interest; and
• The department of labor determines that a successor acquired all or part of the predecessor's organization, trade, business, or workforce solely or primarily to obtain a lower contribution rate.

Employers are required to report transfers. The penalty for willfully failing to report transfers is the greater of $10,000 or the amount of additional taxes due. Criminal fines of up to $1,500 per occurrence may also be imposed. +43 Pa. Stat. Ann. § 301(d).

Voluntary Contributions

Employers may make voluntary unemployment insurance contributions to improve their reserve balances for the year. However, voluntary contributions cannot be applied to lowering unemployment insurance contribution rates. Voluntary contributions must be made by the earlier of 30 days from the date employers receive their rate notices or 120 calendar days from the beginning of the calendar year.

A letter accompanying employers' voluntary contributions should be mailed to:

Employer's Reference Guide to Unemployment Compensation (Rev. 3/06).

Joint or Combined Accounts

Pennsylvania law does not contain provisions for joint or combined accounts.

Quarterly Reporting Requirements

Employers must file quarterly Form UC-2, Employer's Report for Unemployment Compensation, and Form UC-2A, Employer's Quarterly Report of Wages Paid to Each Employee, by the last day of the next month following the end of the quarter. Employers with 250 or more employees must file Form UC-2/2A on electronic media or over the Internet. The state accepts diskettes, tape cartridges, CD-ROMs, and DVDs. The state provides a portal to file over the Internet, called etides.

If a due date falls on a Saturday, Sunday, or legal holiday, the report will be due on the next business day.

Penalties

The penalty for failing to file reports on time is 10 percent of the total contributions due. The minimum penalty is $25 and the maximum penalty is $250 per calendar quarter or fraction of a quarter the reports remain outstanding. Delinquent contributions also bear interest from the date they become due until paid.

Employer's Reference Guide to Unemployment Compensation (Rev. 3/06).

Multiple Worksite Reporting

The Multiple Worksite Report - BLS 3020 - is voluntary for Pennsylvania employers. The totals on the Multiple Worksite Report must match the corresponding totals on the Form UC-2. More information can be obtained from the state labor department at the following address or phone number:

Recordkeeping Requirements

Employers must maintain the following records for four years from the date contributions were due and/or paid:

• Each employee's name and Social Security Number;
• Employees' wage rates;
• Total compensation paid to employees per pay period by type of payment (i.e., cash and cash value of noncash payments);
• Reimbursements or advances for employees' traveling or other business expenses;
• Each employee's place of employment;
• Each employee's full time scheduled hours;
• Each employees' daily attendance record, showing the dates on which employees actually worked, and time lost due to reasons other than lack of work; and
• The date and reasons for an employee's separation.

+34 Pa. Code § 63.64.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.

Additional Resources

Pennsylvania Department of Labor and Industry