Court finds three companies not entitled to new employer rate where they failed to meet requirements of longer lookback period
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Tuesday, October 8, 2019

Court finds three companies not entitled to new employer rate where they failed to meet requirements of longer lookback period

By Payroll and Entitlements Editorial Staff

The agency brought an appeal as to whether three companies—employers subject to its reporting and contribution requirements—were entitled to claim the new employer tax rate under the Act, rather than the experienced employer rates, under a recent law change. Each employer became a client employer of a professional employer organization (PEO) before 2011 and thus was not required to change their reporting method until January 1, 2014. Per a law change, however, the agency determined that the employers were not entitled to use the new employer tax rate, and instead had to use the experienced employer rate beginning with tax year 2014 and subsequent tax years. The agency was required to calculate the rate by reference to the client employer's prior account and experience rather than by reference to the PEO's prior account and experience. As such, as of January 1, 2014, every client employer would be taxed at its own rate even though the PEO would be paying the contribution. Moreover, because the PEO for each of the employers waited until January 1, 2014, to change their reporting method, a longer lookback period applied to each one. As a result, they were not entitled to the new employer rate because they did not report payroll or employees for 12 quarters. Thus, the court ruled that agency did not err when it concluded that the employers were not entitled to continue using the new employer tax rate. It therefore reversed the circuit court rulings as to each employer (Michigan UIA v. Ambs Message Center, Inc., Mich. Ct. of App., Nos. 343521, 343846, 343989, September 12, 2019).

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