TEN29-07a2.pdf

ETA Advisory File Text

Attachment B Analysis of ETA 581 Data Analysis of ETA 581 Contribution Operations Data for CY 2006 Subject Employers The number of active employers subject to state unemployment compensation coverage grew to 7 521 058 by the end of December 2006 an increase of 201 858 2.76 employers for the 2006 calendar year CY . The count includes both contributing and reimbursing employers from all 50 states the District of Columbia the Virgin Islands and Puerto Rico. Cha rt 1 Tota l Em ploye rs QE 12 31 2000-12 31 2006 6 600 000 6 700 000 6 800 000 6 900 000 7 000 000 7 100 000 7 200 000 7 300 000 7 400 000 7 500 000 7 600 000 D- 00M- 01J- 01S- 01D- 01M- 02J- 02S- 02D- 02M- 03J- 03S- 03D- 03M- 04J- 04S- 04D- 04M- 05J- 05S- 05D- 05M- 06J- 06S- 06D- 06 Number of Employers Chart 1 above illustrates the relatively stable quarterly growth of covered employers over the last six years 12 31 2001-12 31 2006 . Average annual growth including both contributing and reimbursing employers for this six year period has been 117 343 new employers per year. Four states added more than 10 000 new employers in CY 2006 California 71 203 Florida 15 516 Texas 11 788 and Arizona 10 593 . States with the highest percentage of growth for CY 2006 were Arizona 9 California 7 Idaho 7 and Utah 7 . Alabama -1 461 and Ohio -3 555 were the only states to experience a loss of employers during the year. Both states declined by 2 . The Tax Performance System Review and Computed Measures An important element of the Tax Performance System TPS review is the calculation and evaluation of the nineteen computed measures. CM percentages are based on aggregate information taken from the quarterly ETA 581 reports the monthly ETA 2112 reports and the quarterly ES 202 program. The measures are indicators of the timeliness and completeness with which basic and essential unemployment insurance tax transactions occur. Aggregate national CMs provide a basis for comparing individual state performance with national performance. It is important to note that the national CMs provided are Page 2 of 10 aggregate percentages rather than an average of individual state scores. Therefore large states and small states each affect the national scores in direct proportion to the volume of transactions reported. Status Determinations New Employers Timely discovery of liable employers and establishment of new accounts is a tax function vital to the successful operation of a state Unemployment Insurance UI tax program timely processing of unemployment insurance claims and payment of benefits to eligible recipients. Computed measures 1-4 as shown on Attachment A concern the timeliness in which states determine liability and establish accounts fo r new and successor employers. These measures indicate successful state UI tax unit management. For a complete listing of the CMs for CY 2006 for new and s uccessor determinations see Table 1 on the previously referenced OWS Web site. Due to the importance placed on New Status Determinations UI Performs established a core measure that sets a minimum level of performance for timely discovery and establishment of new employers. The expected minimum level of performance for this measure for CY 2006 was 70 . For CY 2006 49 of the 53 reporting states achieved the 70 or greater acceptable level of performance. Four states Puerto Rico 65.1 Iowa 69.9 Kansas 66.3 and Arizona 55.8 did not meet the timely determinations objective for the CY. Nationally 84.2 of new status determinations were made within the 90 day objective for CY 2006. A summary of the CY performance over the last six years for both new employer determinations and successor determinations is provided at the end of the next section on Status Determinations Successor Employers. ETA also established a Government Performance and Results Act GPRA goal for New Determinations. The GPRA goal in contrast to the 70 UI Performs minimum acceptable level of performance is set higher at 82.5 for FY 2006 10 1 2005 9 30 2006 . Nationally that FY 2006 goal was met by ETA with a new employer timely status determination percentage of 83.6 . Additional information about GPRA goals is available in Training and Employment Guidance Letter No. 06-07. The number of new employer status determinations declined during CY 2006. States reported making 933 981 new employer liability status determinations in CY 2006 compared to 938 942 reported for CY 2005 a decrease of 4 961 determinations. The count of new status determinations as reported in item 14 on the ETA 581 report includes all determinations of liability made within the ETA 581 report quarter of employers who have actually met a state threshold of liability plus determinations that reactivate temporarily inactive accounts. Chart 2 below graphically displays the typical surge in the number of new status determinations that occurs during the January March quarters contrasted with the lower count of determinations during the quarters ending in December. Chart 2 Volume of New Status Determinations by Qtr. 170 000 180 000 190 000 200 000 210 000 220 000 230 000 240 000 250 000 260 000 270 000M- 01J- 01S- 01D- 01M- 02J- 02S- 02D- 02M- 03J- 03S- 03D- 03M- 04J- 04S- 04D- 04M- 05J- 05S- 05D- 05M- 06J- 06S- 06D- 06 As illustrated in Chart 3 below the quarterly percentage of timely determinations typically declines in the first quarter of the CY and peaks in the September quarter. Cha rt 3 Ne w Em pl oye r De te rm i na ti ons Completed Within 90 180 Days 72 74 76 78 80 82 84 86 88 90 92 94 96 M- 01J- 01S- 01D- 01M- 02J- 02S- 02D- 02M- 03J- 03S- 03D- 03M- 04J- 04S- 04D- 04M- 05J- 05S- 05D- 05M- 06J- 06S- 06D- 06 90 Day 180 Day Chart 3 also illustrates how the percentages for determinations completed within 180 days parallel the 90 day percentages and fluctuate in a regular quarterly cycle. The quarterly fluctuations also show why these measures must be set for CY a nd FY measurements to be meaningful. Status Determinations Successor Employers Charts 4 and 4a below reveal an unexpected decline in the volume of succ essor determinations. Although the number of employers and the number of new liability determinations continue to show a steady growth trend the volume of successor Page 3 of 10 determinations declined from CY 1996-2003. Chart 4 Numbe r of Succe ssor De te rminations by Qtr. 20 000 22 000 24 000 26 000 28 000 30 000 32 000 34 000 36 000 38 000 40 000 42 000 44 000M- 01J- 01S- 01D- 01M- 02J- 02S- 02D- 02M- 03J- 03S- 03D- 03M- 04J- 04S- 04D- 04M- 05J- 05S- 05D- 05M- 06J- 06S- 06D- 06 Chart 4a Numbe r of Succe ssor De te rminations by CY 1995-2006 100 000 110 000 120 000 130 000 140 000 150 000 160 000 170 000 180 000 190 000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 The actual numbers for the decline can be seen more precisely on the table below 2001-2006 . Although the volume of successor determinations increased slightly in 2005 they again declined in 2006. A comparison of CY 1996 a peak year in number of successor determinations to CY 2003 the low point revealed that during that period 44 states reported a decline in successor determinations. During those 11 years there was a net decline of 53 547 determinations. However 38 of the decline consisted of only three states California -12 943 determinations Maryland -4 061 and Florida -3 121 . California s successorship law commonly referred to as the Unity of Enterprise statute became effective in September 1994 and may have been a factor in the decline. Other states such as Maryland also had law changes that liberalized requirements concerning successorship. Changes in state laws and perhaps other unknown factors appear to have brought about this decline in successorship determination s. Page 4 of 10 Page 5 of 10 The tendency for successor determinations to take longer than new liabil ity determinations can be seen by making a comparison of the percentages in the New - 90 Days column with the Successor - 90 Days column. The percentage of timely successor determinations is lower than new liability determinations for all six of the CYs shown below. New and Successor Status Determinations Year New Determinations New 90 Days New 180 Days Successor Determinations Successor 90 Days Successor 180 Days 2001 880 964 78.6 89.0 142 671 65.9 80.4 2002 887 307 82.4 90.2 134 367 67.5 81.3 2003 861 661 83.3 90.8 122 628 70.7 83.1 2004 904 784 83.8 91.3 124 819 71.2 83.1 2005 939 097 82.3 90.6 125 286 69.1 81.6 2006 933 981 84.2 91.4 124 125 68.8 81.5 Timely Secured and Resolved Filing of Contribution Reports There are six computed measures that show the promptness with which employers file quarterly contribution and wage reports to the SWAs. Three of the measures relate to contributing employers and three similar measures relate to reimbursing employers. The measures for report filing are 1 The percentage of timely contribution reports received by the SWAs. Timely reports are reports for the quarter immediately preceding the ETA 581 report quarter that were filed prior to the delinquency date during the ETA 581 report quarter. 2 The percentage of secured delinquent contribution reports obtained by the state during the ETA 581 report quarter. Secured reports are reports from the quarter immediately preceding the ETA 581 report quarter that are either secured by state staff or voluntarily filed between the date on which the reports first became delinquent and the end of the ETA 581 report quarter. Since the secured report count items 7 and 10 on the ETA 581 report includes all of the timely reports the number of secured reports must always be equal to or greater than the number of timely reports reported in items 6 and 9. 3 The percentage of delinquent reports that are resolved by the end of the report quarter. Resolved reports are delinquent reports from the second quarter preceding the ETA 581 report quarter that are resolved by the end of the report quarter. States may count a delinquent report as resolved by a determining that the report is no longer due inactivating the account or closing the account b establishing a judgment or assessment that is legally due and collectable for the estimated amount of tax due or c by receipt of the report through some other means such as voluntarily filing field auditor contacts subpoenaing records etc. Because resolved reports items 8 and 11 include all of the secured reports reported for the second tax report quarter prior to the ETA 581 report quarter the number of resolved reports reported in item 11 on the ETA 581 report must be equal to or greater than the number of secured reports reported in items 7 and 10 on the previous ETA 581 report. Additional information about the computed measures for report filing data can be found at http www.uis.doleta.gov 8080 OWS-MENU index.xml under TPS Computed Measures Data Compilation. Filing Reports Contributing Employers The table below provides a yearly comparison of the national computed measures for contributing employers for the last six years. As shown the percentage of timely filers has been slowly improving. Tables 2 and 3 on the web page provide a detailed summary of the filing of tax reports for both contributing and reimbursing employers for CY 2006. Filing Contribution and Wage Reports Contributory Employers Calendar Year Timely Secured Resolved 2001 87.2 92.1 96.9 2002 87.9 92.5 97.0 2003 88.2 92.5 97.0 2004 88.2 93.1 97.1 2005 88.3 93.1 97.4 2006 88.5 92.8 97.8 Chart 5 below illustrates the higher compliance for timely reports for the filing of the fourth quarter contribution reports during the quarter ending March 31. Chart 5 Contributing Employers - Timely Secured Resolved Reports 82 84 86 88 90 92 94 96 98 100 Mar - 01 Jun-0 1 Sep-0 1 Dec-01 Mar - 02Jun- 02 Sep -02 Dec -02 Mar-0 3 Jun-0 3 Sep -03 Dec -03 Mar - 04Jun-0 4 Sep- 04 De c-04 Mar- 05 Jun-0 5 Sep-0 5 Dec -05 Mar- 06 Jun-06Sep -06 Dec -06 Pe r c e n t a g e Time ly Sec ur ed Re s o l v e d Filing Reports Reimbursing Employers Page 6 of 10 Fifty-two states are now reporting their count of timely secured and resolved reimbursing employer contribution reports that are received and processed during the ETA 581 report quarters. The final state Massachusetts is expected to begin receiving and reporting reimbursing employer report data soon. The performance percentages shown below do include approximately 2 817 Massachusetts reimbursing employers. Because Massachusetts does not report a count of the timely secured and resolved reports from reimbursing employers including them in the employer count lowers the national aggregate percentages. National Aggregate Filing Contribution and Wage Reports Reimbursing Employers Calendar Year Timely Secured Resolved 2001 80.3 84.9 86.8 2002 80.5 84.8 86.3 2003 80.4 86.4 88.3 2004 81.7 86.8 88.1 2005 83.7 88.2 87.8 2006 86.3 92.0 90.6 Receivables Contributing and Reimbursing Combined Receivables normally decline in the March ETA 581 report quarter due to most employees exceeding the state taxable wage bases during the fourth quarter. However most of the wages paid in the January March quarter are taxable causing employers to owe the maximum tax on the tax report filed during the April June quarter. States typically establish the highest amount of receivables in the April June quarter as shown on the chart below. Chart 6 below shows a typical surge in receivables for the June 2006 quarter. However the quarter ending September 30 2005 is unusual. Rather than the expected drop in receivables due to some employees reaching the taxable wage base limit with wages paid during the second quarter receivables increased. Perhaps this unusual spike was partly due to the effects of hurricane Katrina which occurred on August 29 2005. Chart 6 Ending Balances Receivables - All States All Employers Ma rch 01 - De ce mbe r 06 550 600 650 700 750 800 850 900 950 1 000 M - 0 1 J-01 S-0 1 D- 01 M-02 J- 0 2 S-0 2 D- 02 M- 0 3 J-03 S- 03 D- 03 M-04 J- 0 4 S-0 4 D- 04 M- 0 5 J- 05 S- 05 D- 05 M-06 J- 0 6 S-0 6 D- 06 M illion s The table below shows the percentage of gr owth except for the CY 2002 decline of 7.79 for the ending receivables balances for pertaining to contributi ng and reimbursable employers for years 2001-2006. Page 7 of 10 Page 8 of 10 Growth of Receivables - All Employers All States Year CY Ending Balance Contributing CY Ending Balance Reimbursable Total CY Receivables Growth decline Change 2001 641 934 074 78 108 222 720 042 296 13 019 227 1.84 2002 589 738 905 74 204 420 663 943 325 59 098 971 7.79 2003 601 726 827 93 638 818 695 365 645 31 422 320 4.73 2004 699 471 080 87 540 250 787 011 330 91 645 685 13.18 2005 820 822 945 75 497 768 896 320 713 109 309 383 13.89 2006 852 437 577 76 653 700 929 091 277 32 770 564 3.66 Audit Activity The National Office measures three state audit functions 1 the percent of total wage changes resulting from audit adjustments 2 the percent of contributory employers audited and 3 the percent of total wages audited annualized. Although not a computed measure starting with the first quarter of 2000 states began counting and reporting the number of employees misclassified as independent contractors that were discovered in audits. As set out in the Employment Security Manual ESM states are expected to audit 2 of their contributing employers each year. The ESM also requires that 1 of the 2 requirement qualify as large employers. Large employers are defined as employers with at least 100 employees during the current or preceding year or with at least one million dollars in taxable wages in the year preceding the audit. For computing the number of audits required per year states should multiply 2.0 times the number of contributing employers counted at the end of the third quarter of the preceding year. The following table shows national totals for each of the three audit computed measures plus additional audit information. Year Audits Complete Change Audits of Contributing Employers Audited of Audits Qualified as Large Audits of Pre-audit Total Wages Changed of Total Wages Audited annualized Employees Misclassified as ICs 2001 107 429 44 895 1.6 2.4 4.4 0.9 107 210 2002 110 987 46 892 1.6 2.4 5.2 1.0 125 262 2003 116 281 49 114 1.7 2.2 4.9 1.3 123 044 2004 120 243 50 998 1.7 2.3 5.1 1.3 139 554 2005 116 124 50 088 1.6 2.3 5.2 1.2 132 965 2006 116 463 50 437 1.6 2.5 5.3 1.2 160 000 For CY 2006 states completed 116 463 audits which compute to a national penetration rate of 1.6 of the contributing employers counted on September 30 2005. Discrepancies were found in 50 437 43 of the audits and auditors d iscovered 160 000 employees that employers had misclassified as independent contractors. As shown on Table 13 for CY 2006 twenty-nine states were successful in meeting the 2 penetration objective. Chart 7 provides a quarterly comparison of audits to the number of misclassified employees that are discovered and reported on the quarterly ETA 581. Th e chart also shows the tendency of states to audit the fewest employers during the December quarter and the most employers during the quarter ending June 30. Although states were required to begin reporting a count of employee misclassifications discovered in their audits beginning with the quarter ending 3 31 2000 only 31 states were able to meet that objective. It was not until the second quarter of 2005 that all states began providing this information. This gradual increase in the number of states reporting misclassification data would have some impact on the upward trend shown on chart 7. Chart 7 Audits Completed Emplo ye e M isclassifications Discov e re d M arch 2000 - De c 2006 16 000 20 000 24 000 28 000 32 000 36 000 40 000 44 000 48 000 52 000 M-00 J-00 S- 0 0 D-00 M-01 J-0 1 S- 0 1 D-01 M-02 J- 02 S-02 D-02 M-03 J-03 S- 0 3 D-03 M-04 J-0 4 S- 0 4 D-04 M-05 J- 05 S-05 D-0 5 M-06 J-06 S- 0 6 D-06 Audits Com pleted Em ployees Found Mis clas s ified The increase from 132 965 misclassifica tions reported in 2005 to 160 000 misclassifications reported in 2006 occurred primarily in Region 5. Region 5 increased from 37 394 in 2005 to 56 459 in 2006. The Region 5 increase was led by Ohio which reported 13 828 Misclassifications in 2006 compared to 4 774 in 2005. The unusual drop in the number of misclassifications discovered in the September quarter of 2006 appears to be accurately reported since the national decline resulted from small declines in 27 states. As shown below on Chart 8 over the seven year period from 1 1 2000 through 12 31 2006 there has been a noticeable upward trend in under reported wages discovered through the audit process. Increasing wages and taxable wage bases account for some of the increase but aside from that it appears that either states are improving their audit techniques or evasion is becoming more prevalent. Additional annual audit data detailed by state and region is available on the web page see tables 10-13. Page 9 of 10 Chart 8 Under Reported Total Wages Discovered Through Audits Dec 2000 - Dec 2006 200 000 000 300 000 000 400 000 000 500 000 000 600 000 000 700 000 000 800 000 000 900 000 000 Dec - 00 Ma r-0 1 Jun - 01 Se p- 0 1 Dec - 0 1 Mar -0 2 Ju n- 02 Se p- 0 2 De c-0 2 Mar -0 3 Ju n- 03 Sep - 0 3 De c- 03 Ma r- 04 Jun - 04 Se p- 04 Dec - 04 Ma r- 0 5 Jun- 0 5 Se p- 0 5 De c- 0 5 Ma r-0 6 Ju n-0 6 Se p- 0 6 De c- 0 6 Page 10 of 10