Tax Law Insights

Due to the COVID-19 pandemic, many employers have furloughed some or all of their workforce in South Carolina.  Furloughed employees may now be entitled to receive unemployment benefits, and enhanced by $600 per week by the federal government through the CARES Act.

In South Carolina, unemployment benefits paid to unemployed workers are funded by the South Carolina Unemployment Insurance Tax (UI Tax).  The UI Tax – also known as South Carolina’s version of “SUTA” – is imposed on employers and paid to the South Carolina Department of Employment and Workforce (SCDEW) and which administers the program and pays unemployment benefits to South Carolina workers.

UT Tax assessed against employers is taxed at graduated rates and based generally on the employer’s “benefit experience rating”.  This means that if an employer terminates, lays-off, or furloughs employees, and where the employees then claim unemployment benefits, the employer’s UI Tax rate for the following year goes up.  In this manner, SCDEW is able to recoup higher unemployment benefits paid to an employer’s workforce.

While SCDEW generally has the statutory right to increase UI Tax against an employer where the employer’s workforce is not being paid and claims unemployment benefits, there are limits.  Applicable to the current COVID-19 pandemic, SCDEW is prohibited from increasing employer UI Tax rates for unemployment benefits “paid as a result of declaration of emergency declared by the Governor”.

South Carolina Governor Henry McMaster has declared such an emergency in a number of Executive Orders since the beginning of the COVID-19 pandemic.  SCDEW has also announced, in a series of “Questions and Answers” applicable to “Coronavirus and Unemployment Benefits”, that “”[s]outh Carolina law allows for the removal of charges from employers when unemployment benefits are paid as a result of a natural disaster, either declared by the President of the United States or the declaration of emergency by the Governor.”

While this may give employers comfort that SCDEW may not seek to charge them increased UI Tax during this emergency, what then after the Governor declares the end of the COVID-19 emergency – at least in his view?  It will take time for employers to ramp back up and bring employees back, but, until that time and while workers may still be collecting unemployment benefits, SCDEW may seek to hold the employers liable for additional UI Taxes to help SCDEW recoup unemployment benefits paid after the emergency declaration ends.