If employment is covered under the Pennsylvania Unemployment Compensation Law (Law), employers are responsible for UC coverage of their employees. However, political subdivisions and certain nonprofit employers have a choice of two methods of financing this coverage. The two methods are:
Contributory Method - employers pay contributions (tax) based on a contribution rate and taxable wage base paid to each employee each calendar year.
Reimbursable Method - employers may elect, if qualified, to reimburse the UC Fund for the amount of UC benefits charged to their account and billed dollar-for-dollar on either a quarterly or monthly basis.
Nonprofit employers exempt under section 501(c)(3) of the Internal Revenue Code who elect the reimbursable method are required to reimburse the Fund for all regular benefits paid which are attributable to service with the employer, and for one-half of the extended benefits paid.
Political subdivisions of the Commonwealth who elect the reimbursable method are required to reimburse the Fund for all regular benefits attributable to their employ, and the full amount of extended benefits.
Collecting and Remitting Employee Withholding
When applicable, all employers are required to withhold employee contributions at the time wages are paid regardless of the method used to finance UC liability. The employee withholding tax rate is determined annually and is based upon the trigger mechanism in the PA UC Law under Sections 301.7 and 301.8 (43 P.S. §782.7 and §782.8). Whether the employer is a contributory or a reimbursable employer, payment in full of all withheld employee contributions must be remitted to the Office of UC Tax Services (UCTS) with the employer's quarterly tax and wage information.
Employee contributions are based on an individual's total (gross) earnings. The taxable wage base ceiling does not apply to employee contributions. Employee contributions are not considered in determining an employer's experience rate, nor are they considered to be "contributions" for federal certification purposes under the Federal Unemployment Tax Act (FUTA).
Terminating Reimbursable Status
An employer may terminate reimbursable coverage after a period of not less than two taxable years and convert their status to that of a contributory employer at the end of any calendar year. The employer must submit their request in writing and it must be received thirty (30) days prior to the end of the calendar year (by December 1).
Under Section 1107(b) and 1202.5(b) of the PA UC Law (43 P.S. §907 and §912.5) employers who have elected the reimbursable method of financing UC coverage may be converted to the contributory method for failure to file all required quarterly reports, remit amounts due and/or provide collateral bond or deposit (if applicable). The conversion will be effective for two years, beginning the next calendar year through the following calendar year.