SECTION V. - Methods of Financing Unemployment Compensation Programs

Methods of Financing Unemployment Compensation Programs

Liable employers, under the Kansas Employment security Law, fall into one of three main categories, either contributing, reimbursing or rated governmental depending upon the method of financing the employer uses to satisfy the unemployment compensation tax liability.

While the majority of liable employers in Kansas are required to be "contributing" employers, provisions of the law specify that nonprofit organizations exempt under 501(c)(3) of the Internal Revenue Code and governmental entities may elect an alternative method to finance their tax liability.

Employer Handbook Index

Contributing Method:

All employers in Kansas, except governmental entities and 501(c)(3) nonprofit organizations, are required to be contributing employers; however, at their option they also may select the contributing method of payment. A contributing employer is required to report total wages paid each employee during a calendar quarter, but pays taxes based upon an $8,000 taxable wage base as defined in the law.

Employer Handbook Index

Reimbursing Method:

This alternative payment method is available only to governmental entities, Indian Tribes or nonprofit organizations which are exempt under the Internal Revenue Code, Section 501(a) and specifically described in Section 501(c)(3). With this option, the employer reports total wages paid each employee each quarter, but pays no tax at the time. Instead, this option requires the employer to reimburse the fund 100 percent for any benefits paid to their former employees. Also, this option does not have a noncharge provision for benefits as do the other two options.

Election of the reimbursing payment option must be for a minimum of four complete calendar years. Once the minimum period has been satisfied, such employer may change their payment option by filing a written request with the Secretary of Labor not later than 30 days prior to the beginning of the calendar year for which the change is to become effective.

Employer Handbook Index

Bond Required:

A 501(c)(3), or governmental employer or Indian Tribe electing the reimbursing option will be required to obtain a surety bond or post a surety deposit with the department or to purchase and deliver to an escrow agent a certificate of deposit in the amount of 5.4 percent of the organization's taxable wages (or estimated amount of taxable wages) paid during the one-year period immediately preceding the date of election. Within this option, extended benefits for a governmental entity are charged 100 percent to the employer's account. Extended benefits for a 501(c)(3)organization are charged 50 percent to the employer and 50 percent to FUTA.

Employer Handbook Index

Rated Governmental Method:

This alternative payment method is only available to a governmental entity. This employer reports total wages paid each employee each quarter and pays tax on total wages.

Election of the rated governmental payment option must be for a minimum of four complete calendar years. Once the minimum period has been satisfied, such employer may change their payment option by filing a written request with the Secretary of Labor not later than 30-days prior to the beginning of the calendar year for which the change is to become effective.

A new rated governmental employer is assigned a rate for each year until it becomes eligible for a computed rate. The assigned rate is based upon the benefit cost experience of all rated governmental employers during the previous fiscal year ending March 31. Generally, after three years the employer becomes eligible for a computed benefit cost rate.

Most governmental entities operate on a fiscal-year budget and require a much earlier notification of their future tax liability. The rated governmental payment method meets this special need since the computation date is March 31 and permits notification of an employer's benefit cost rate in June of each year. The following points should be noted:

1. Rated governmental employers are eligible to participate in the noncharge provisions of the law (refer to the explanation of noncharge in the Benefit's section).

2. The computed benefit cost rate for eligible employers will be based upon an employer's own experience and an adjustment factor which is used to recover the cost of noncharged benefits paid to former employees of rated governmental employers.

3. The rates will vary among employers, but no rate can be less than 0.10 percent.