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HomeMy WebLinkAboutItem 9.1 Unemployment Insurance Program 'l 2,O'" CITY OF DUBLIN • AGENDA STATEMENT Meeting Date: August 9, 1982 SUBJECT: Unemployment Insurance Program EXHIBITS ATTACHED: None RECOMMENDATION: Authorize City Manager to notify State Employment Development Department that the City has selected the Individuate Reimbursement Account method for financing Unemployment Insurance costs. FINANCIAL STATEMENT: No anticipated cost during Fiscal Year 1982-83. DESCRIPTION: In 1976 Congress passed Public Law 94-566 which required all States to provide unemployment insurance coverage to State and local government employees effective January 1 , 1978. On January 1 , 1978, the Governor signed AB 644 (State companion legislation)which implemented the Federal Law requiring local government employers to provide unemployment insurance to their employees. Financing The City has several options available to it, for the provision of unemployment compensation benefits to former employers. These options are briefly summarized below. The selection of any one of these methods does not preclude changing to another option at a later date. 1 . Contribution Rate Method This method requires the employer to pay 3.6% of the first $6,000 of taxable wages per employee to the State. After three years, an employee becomes rated according to its experience, and thus permits an adjustment of the tax rate charged from 1 .4% to 4.9%. This method is similar to the purchase of an insurance policy in that once the employer pays its contribution, that contribution becomes the property of the State Unemployment Insurance Fund. This method is usually considered to be the most expensive method of financing, unless high turnover and high claim volume is anticipated. Estimated Cost - First Four Years of Program 1982 - 83 $ 864 • 1983 - 84 864 + 1984 - 85 864 + 1985 - 86 336 + * TOTAL - $2,913 Copies To: ITEM NO. 67 f AGENDA STATEMENT Unemployment Insurance Program Page 2 + Assumes City's work force remains static at four (4) employees. * Assumes that the City has low turnover, and therefore would receive lowest rate possible in the fourth year. 2. Individual Reimbursement Account Under this option the City would agree to reimburse the Unemployment Fund for every dollar of Unemployment Insurance benefits paid to its former employees. This is the best method, if the number of former employees who receive benefits is low, because: 1 ) no advance payment is required and 2) the cost of the program is not affected by other employers as is the case with the Contribution Rate Method and the Local Public Entity Fund. It should be pointed out that this method may result in extremely high costs, if the number of former employees receiving benefits is high. The maximum that the City could conceivably have to pay for a former employee over a 2 year period would be $9,360. This assumes that an individual is unemployed for a period greater than 2 years due to no fault of his/her own and that the City is the sole employer for the entire base period. If the City selects this financing option, it must retain this option for a minimum of two complete calendar years. Further,:the City would retain liability for all benefits paid on wages reported under this method. This method is the most difficult for budget purposes because the costs are not known until after they are incurred. However, given the fact that Dublin is a new City, with new employees, it is Staff's opinion that employee turnover during the first four years of the program would be low or possibly non-existent. Thus, resulting in a minimal cost to the City. 3. Local Public Entity Fund This method is offered as a compromise between the contribution method with its relative high cost but low risk and the Individual Reimbursement Method with its relative low cost but high risk. This method would result in the same costs to the City as the Individual Reimbursement Method, eventually. Yet, should the City experience a high rate of turnover, the method would delay the impact of these benefits until a later time. The basic requirements of this method are as follows: 1 ) costs are set at .8% of gross payroll for a period of three years; 2) costs after the third year would be based on the City's experience; 3) once this method is used it must be retained for a period of two full calendar years; 4) should the City wish to withdraw from the fund, all credits against the City's account would have to be paid, while any excess monies would be refunded to the City. The main disadvantages of this method are first, the costs for the first three years while building a reserve could be greater than an Individual Reimbursement Account and second, the funds would be out of the City's control . The advantage of a three year flat rate would allow the City an opportunity to gain actual experience, while at the same time limiting expenditures. If this method generates a large reserve for the City, then the Individual Reimbursement Method can be selected after two years and the reserve used to cover the claims benefit expenditures. If this method created a negative reserve over the first two or three years, the City would have to assess the negative reserve to see if it is large enough to warrant converting to the Contribution Method and, if not, then staying in the Local Public Entity Fund would require paying off the negative reserve at an additional .2% of payroll until the debt was paid. IS} AGENDA STATEMENT Unemployment Insurance Program Page 3 Conclusion After considering the various financing methods, and their respective advantages and disadvantages, the Individual Reimbursement Account gives the City the greatest amount of control over the Unemployment Insurance Program and provides the City coverage at the lowest long-term cost. However, since this method involves the highest risk it is recommended that a reserve of .8% of gross payroll (approximately $900) be established each year commencing with fiscal year 1983-84 to cover the risk. It is also recommended that the City Council authorize the City Manager to notify the State Employment Development Department that the City has selected the Individual Reimbursement Account method for financing Unemployment Insurance costs.