As employers struggle with sky-rocketing unemployment insurance premiums, some look to reorganization for relief. Unfortunately, most business reorganizations designed to reduce unemployment insurance rates are illegal and can result in serious trouble for employers.
Maryland’s State Unemployment Tax Act (“SUTA”) prohibits employers from taking unlawful actions to lower their unemployment insurance tax rate below the rate that would be assigned based on the employer’s actual experience rate with layoffs and payrolls.
This “dumping rule” applies to mergers, acquisitions or restructuring schemes (especially those involving the shifting of the workforce and/or payroll from one business entity to another), where the employer is granted a new lower rate because it withholds experience rate information about the predecessor entity. Exceptions to SUTA’s dumping rule are very limited.
Employers who knowingly withhold or provide false information regarding the transfer of workforce and/or payroll from one business entity to another may be subject to stiff penalties, including higher unemployment insurance tax rate, monetary fines and even imprisonment.
The best way to avoid getting caught violating the SUTA dumping is to notify the Maryland Department of Labor, Licensing and Regulation’s Division of Unemployment insurance when workforce/payroll is shifted from one business entity to another.
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