Unemployment Law Revisions Set Forth New Employer Requirements

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.