State Unemployment Insurance: Where are Employers Liable?

As work arrangements continue to be scrutinized across the US, companies who continue to offer remote work or who operate across multiple states must remain aware of certain laws that impact their distributed workforces. Some of the more challenging laws to understand are those related to state unemployment insurance (SUI), and more specifically, the locations in which employers may bear the burden for this insurance. Employers are often frustrated to find minimal support from the states on their liability. Even more surprising, the guidance can often vary from state-to-state, and sometimes even depend on the agent you speak with at the agency. To add to the confusion, many states do not publish laws on their websites and oftentimes, work arrangements can be complex, transitory, or temporary in nature. It’s no wonder that employers get confused, especially when the states themselves offer little clarity.

The Flex HR team has taken the opportunity to summarize these complexities for you. Our payroll tax team has spent considerable time and effort consulting with state agencies, poring over employer handbooks, and seeking guidance directly from the Department of Labor to ensure our clients’ compliance with applicable law. After carefully reviewing the U.S. Department of Labor UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 20-04, we are sharing our summarized findings on how SUI liability is determined.

Determining the “Localization of Work”

When determining liability for SUI, the Department of Labor considers where an individual’s employment is being performed, and they consider an individual’s “employment” to include the individual’s entire service. According to the DOL, “The objective of ‘localization of work’ provisions in state unemployment insurance laws is to cover under one state law all of the service performed by an individual for one employer, wherever it is performed.” In other words, the goal is to streamline an individual’s work under one state’s laws when possible, instead of one’s work being subject to multiple state laws. To implement these provisions, the DOL has developed the following guidelines:

A service shall be deemed localized within a state if:
- the service is performed entirely within such state; or
- the service is not performed entirely within such state, but it is considered “incidental to the individual’s service within the primary state”. For example, the work is temporary or transitory in nature or consists of isolated transactions.
  - When determining whether a provided service is temporary or transitory in nature, there are a few considerations:
    - Is the service intended to be an isolated (i.e. one-time or infrequent) transaction, or is the service a regular part of the employee’s day-to-day responsibilities?
    - Does the employee intend to return to the original state upon completion of the work in the other state, or is it the employee’s intention to continue to work in the other state?
  - A service shall not be deemed localized in any state if the service is not localized in any state but some of the service is performed in this state, and;
    - the individual’s base of operations is in this state (see Guide for Determining the Base of Operations); or
    - if there is no base of operations, the place from which such service is directed or controlled is in this state (See Guide for Determining the Place From Which the Service is Directed or Controlled); or
    - the individual’s base of operations or place from which such service is directed or controlled is not in any state in which some part of the service is performed, but the individual’s residence is in this state (See Guide for Determining the Place of Residence).

Using the Four Factor Test to Determine SUI Liability

States then implement what’s called the Four Factor Test. This is a series of sequential questions in which the first question is answered, and if it cannot be answered clearly, the state considers the second test, and so on. The questions in the Four Factor Test are as follows:

Is the individual’s service localized in this state or some other state? Note: Only if the service is not localized in any state is any other test necessary.
If his/her service is not localized in any state, does he/she perform some service in the state in which his/her base of operations is located?
If the individual does not perform any service in the state in which his/her base of operations is located, does he/she perform any service in the state from which the service is directed and controlled?
If the individual does not perform any service in the state from which his/her service is directed and controlled, does the individual perform any service in the state in which he/she lives?

While the guidance provided by the Department of Labor is intended to provide clarity on an incredibly complex topic, we understand if you’re still feeling bewildered – and we’re here to help. Flex HR has a team of readily available experts to ensure your compliance with this – and other! – complicated stated laws. Reach out to us today to learn more!