The Unemployment Insurance (UI) program provides temporary unemployment benefits to eligible unemployed workers by replacing a portion of their wages for a limited time. The U.S. Department of Labor oversees UI while states administer their own programs within guidelines determined by federal law. For employers doing business in New Jersey, it’s important to understand UI employer liability in the state.
The result is a complex system with multiple trust funds, tax rates, and benefit levels across the country. This blog series is intended to help readers understand how that system works with special emphasis given to employer liability and employee eligibility in different states.
UI Employer Liability in New Jersey
Unemployment insurance in New Jersey is administered by the New Jersey Department of Labor and Workforce Development. Employers register for UI tax and other business taxes through the New Jersey Division of Revenue and Enterprise Services (DOR) either online or on paper. New Jersey businesses, such as corporations, LLCs, and registered partnerships, need a New Jersey-issued business ID number to complete the registration process.
The majority of employers are covered by New Jersey’s Unemployment Compensation Law and are, therefore, subject to the state unemployment insurance tax. UI employer liability in New Jersey generally covers:
- Employers that start a business and employ one or more individuals and pay wages of $1,000 or more in a calendar year;
- Employers that acquire the organization, trade or business, or substantially all the assets of an employing unit that is already subject to the law; and
- Employers who are subject to the provisions of the Federal Unemployment Tax Act, unless the services performed are specifically excluded under the New Jersey law.
An employing unit is generally subject to FUTA if it had covered employment during some portion of a day in 20 different calendar weeks within the calendar year or had a quarterly payroll of $1,500 or more. In determining UI employer liability in New Jersey, consideration is also given to the following:
Independent Contractors
Whenever services are performed for remuneration, the question of whether such services are considered as performed by an independent subcontractor or a covered employee is determined by application of the three tests of Section 19(i) (6) (A), (B) and (C) of the New Jersey Unemployment Compensation Law.
Multiple-State Employment
When an employee performs services for the same employer in New Jersey and in some other state, the question of whether that employee is covered by the New Jersey Unemployment Compensation Law is determined by the tests of Sections 19 (i) (2) (A) and (B). The application of these tests will result in the reporting to one state of the employee’s total wages in all states.
The tests are applied to the employee, not to the employer, in the following order:
- Localization of service;
- The base of operations;
- Place of direction and control; and
- Residence of an employee.
Exempt Employment
In accordance with the Unemployment Compensation Law, certain categories of services are exempt from Unemployment Compensation coverage. However, these services are exempt only if there is a corresponding exemption under the FUTA, or if the services are otherwise not subject to tax or coverage under FUTA.
Termination of UI Employer Liability in New Jersey
If employers are subject to the law and you sell their business or have no one working for them, they may be relieved of UI employer liability in New Jersey if they notify the Employer Status Section of the Division of Employer Accounts.
UI Employer Liability in New Jersey
Unemployment Insurance benefits are designed for people who lose their job through no fault of their own, such as an employer’s lack of work or a layoff due to downsizing. If employees voluntarily quit a job for reasons that were not work-related or were terminated for misconduct, UI employee eligibility in New Jersey will need to be reviewed.
A representative from NJDOL conducts a fact-finding interview by either phone or email to determine whether employees are eligible for UI benefits and employers may also be requested to participate. After reviewing the facts, the claims examiner will determine UI employee eligibility in New Jersey based on the law.
Base Year Period
To meet UI employee eligibility in New Jersey, employees have to meet a minimum earnings requirement during their base period, the timeframe used to determine if they qualify for UI benefits and to calculate their benefit amount.
The regular base year period consists of 52 weeks and is determined by the date employees apply for UI benefits. To be eligible in 2022, they must have earned at least $240 per week during 20 or more weeks in covered employment during the base year period or must have earned at least $12,000 in total covered employment during the base year period.
The wages earned during the base year determine the amount of weekly benefits employees may receive, and the total amount they can claim in a given year. If workers do not qualify with a standard base year, there are other ways of calculating a base year.
When it comes to education employees, there are different reporting requirements for UI employee eligibility in New Jersey. State law requires school employers to report to NJDOL which employees they expect to return to work after summer or winter break. In other words, they must inform NJDOL which school employees have reasonable assurance that they will return to their jobs, and which employees are not expected to return.
Meeting New Jersey UI Requirements
The New Jersey Business and Industry Association estimates businesses in this state face about $250 million in additional taxes this fiscal year and will also owe an additional $600 million over the next two years. As a result, the New Jersey Assembly Commerce and Economic Development Committee approved A-3683, a bill that would give tax credits to some small businesses with an aim to offset increasing unemployment insurance taxes following the coronavirus pandemic. If the bill becomes law, companies can receive unemployment tax credits if they meet the U.S. Small Business Administration’s definition of a small business.
Unemployment compensation is designed to pay benefits to workers when they lose their jobs through no fault of their own and to fund this program, employers are subject to federal and state unemployment taxes based on various factors. While meeting UI requirements is complex, UI tax is one of the very few taxes that employers can directly influence as their success in preventing unemployment claims reflects on the amount of taxes they pay. In addition to this, outsourcing the UI claims management process can help them keep unemployment claims to a minimum while saving them time and money along the way.