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Unemployment Law Revisions Set Forth New
Employer Requirements
By Lawton
Humphrey and Gillian
Murphy
[September 2007]
As a result of new revisions to the unemployment
laws, all Washington state corporations must now register their
corporate officers with the state Employment Security Department
(ESD) by Sept. 30. In addition, corporations are now required
to provide unemployment coverage for all of their corporate
officers, unless an employer notifies ESD and its officers that
it intends to exempt them from coverage and follows certain
guidelines regarding the number of available exemptions.
Senate Bill 5373 was passed in an effort to prevent
ineligible corporate officers from collecting unemployment and
to ensure that officers are responsible for unemployment taxes
in the event of failure to pay taxes or fraud. Under previous
law, other employers ultimately had to bear the cost of overpayments
due to error (deliberate or otherwise) on an employer’s
quarterly tax report or failure to pay taxes.
Corporate Officer Report
All corporations in Washington state, including
non-profit corporations, must provide the following information
for each officer no matter where the officer resides:
- Full name
- Title
- Social Security number
- Home address
- The date the person became a corporate officer
- How much of the company the officer owns
- How the person is related to other officers who own more
than 10 percent of the business
The law does not provide any specific guidance regarding who
is a corporate officer for purposes of the Corporate Officer
Report. The intent behind the report is to ensure that ESD has
accurate information regarding corporate officers, should enforcement
actions become necessary for unpaid taxes.
In determining whom to report, corporations should focus on
those corporate officers who are in a position to make, or influence,
decisions with respect to the payment of unemployment taxes
and filing quarterly tax reports. They also should consider
the definition of a corporate officer provided by the Washington
Business Corporations Act, which includes the officers described
in the company’s bylaws or appointed by the board of directors
in accordance with those bylaws.
The Corporate Officer Report is confusing. It was apparently
designed as a multipurpose form to be used when the ESD seeks
information from employers with other ownership structures.
Thus, corporations do not need to identify and provide information
on all of their owners or owners’ spouses—only on
corporate officers. ESD previously sent the form and instructions
to all corporations. The report is also available
online. Corporations will be required to report any change
in the information. ESD has indicated that this sensitive information
will be protected from public disclosure.
Exemptions for corporate officers
In addition to setting forth reporting requirements, Senate
Bill 5373 changed the way corporate officers are treated in
terms of tax assessment and benefits eligibility. Previously,
corporate officers were generally not employees for whom taxes
should be paid. Now, beginning in 2009, the services provided
by corporate officers will be considered “employment services,”
and their wages must be reported on the quarterly tax report.
To avoid paying the taxes associated with these wages, a for-profit
corporation may exempt certain corporate officers who would
otherwise be eligible to receive unemployment compensation benefits.
Those officers must meet certain requirements, which vary depending
on whether the corporation is public or private. In addition,
the officer must agree to be exempt and the employer must send
an exemption notification form to the ESD. The exemption
notification form may be sent to the ESD at any time. However,
the exemptions will be effective only as of the first day of
the calendar year. These revisions, which go into effect on
January 1, 2009, do not affect the rules currently in place
regarding exemptions for non-profit organizations. For information
related to non-profit organization exemptions, see RCW 50.44.
A public corporation may exempt any number of bona fide officers
who:
- Are voluntarily elected or appointed in accordance with
articles of incorporation or bylaws;
- Are shareholders;
- Exercise substantial control in the daily management; and
- Perform primarily non-manual labor.
A private corporation may exempt up to eight bona fide officers
who:
- Are voluntarily elected or appointed in accordance with
articles of incorporation or bylaws;
- Exercise substantial control in daily management; and
- Perform primarily non-manual labor with the exception that,
if shareholders, they may be exempt without regard to the
officer’s performance of manual labor.
A private corporation also may exempt any number of officers
related by blood (within the third degree) or marriage.
Finally, for officers who remain subject to unemployment coverage,
the new law clarifies that a corporate officer who owns 10 percent
or more of stock (or a family member of such officer) is not
considered “unemployed” and therefore eligible for
benefits as long as the officer is still serving term as an
officer or is an owner, even if not collecting wages. Only upon
dissolution of the corporation or the officer’s permanent
resignation or removal, may such officers be eligible.
For more information, please
contact:
Davis Wright Tremaine has employment
and labor lawyers in Alaska, Oregon, Washington state,
California and Washington, D.C. We represent many clients nationally.
For a specific referral for a DWT employment and labor attorney
in your state, please contact an above attorney. Thank you.
This
advisory
is a publication of the Employer Services Department of Davis
Wright Tremaine LLP. Our purpose in publishing this advisory
is to inform our clients and friends of recent developments
in employment law. It is not intended, nor should it be used,
as a substitute for specific legal advice as legal counsel may
be given only in response to inquiries regarding particular
situations.
Copyright
© 2007, Davis Wright Tremaine LLP.
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