Dear Reader:
The following document was created from the MTAS electronic library known as MORe (www.mtas.tennessee.edu/more). This online library is maintained daily by MTAS staff and seeks to represent the most current information regarding issues relative to Tennessee municipal government.
We hope this information will be useful to you; reference to it will assist you with many of the questions that will arise in your tenure with municipal government. However, the Tennessee Code Annotated and other relevant laws or regulations should always be consulted before any action is taken based upon the contents of this document.
Please feel free to contact us if you have questions or comments regarding this information or any other MORe material.
Sincerely,
The University of Tennessee
Municipal Technical Advisory Service
1610 University Avenue
Knoxville, TN 37921-6741
865-974-0411 phone
865-974-0423 fax
www.mtas.tennessee.edu
Unemployment insurance is a program that provides up to 26 weeks of benefits to Tennessee workers who have lost their jobs through no fault of their own. For more specific information on certain aspects of this benefit click on the sections below.
T.C.A. §§ 50-7-101, et seq., prescribe the state’s unemployment compensation program. Information concerning the application of this program to Tennessee municipalities can be obtained from local offices of the state Department of Employment Security. The statute contains a number of remedies available to the state for collection of unpaid premiums. T.C.A. §§ 50-7-401, et seq.
Every municipality in Tennessee is required to participate in the state’s unemployment insurance compensation program. The program provides for up to 26 weeks of subsistence funds to Tennessee workers who, through no fault of their own, are laid off or terminated for any reason other than gross misconduct. Private sector employers are required to purchase unemployment compensation insurance from the Tennessee Department of Labor and Workforce Development at premiums based upon each employer’s claims history. An employer whose employees (or former employees) have filed a high number of claims for unemployment insurance compensation will pay a higher premium than other employers whose claim experience is lower.
State and local governments in Tennessee, including municipalities, have a choice, however, that is not available to private sector employers. At their option, cities may designate themselves as either a “premium paying” or a “reimbursement” employer. A municipality’s choice in this matter has implications for its annual budget.
A “premium-paying” municipality is one that elects to provide a program of unemployment compensation through the traditional method of paying insurance premiums to the Tennessee Department of Labor and Workforce Development. Similar to the program mandated for private sector employers, “premium-paying” cities pay a quarterly insurance premium to the state and in return, the state pays claims for unemployment insurance filed against the city. As in the private sector, each city’s insurance premium is based upon its claims history and, therefore, such premiums may increase or decrease accordingly.
A municipality’s alternative to paying premiums is to designate itself as a “reimbursement employer.” This option essentially allows cities to self-insure their unemployment compensation liabilities. Consequently, “reimbursement employers” are not required to pay unemployment compensation insurance premiums to the state of Tennessee but must pay 100 percent of all claims for unemployment compensation filed by employees (or former employees).
Following are two methods you can use to determine which option is best for your municipality:
Premium Paying
Example: Your city has 50 employees, all of whom earn more than $7,000 per year. The maximum taxable payroll, therefore, is $350,000 (50 x $7,000). Your premium during the first year as a premium-paying employer will be equal to 1.5 percent of the maximum taxable payroll or $5,250 ($350,000 x .015).
Reimbursement
Example: Your city anticipates having to lay off two employees in the coming year. Both employees would be eligible to receive unemployment compensation benefits. One employee is presently earning $20,000 per year (with a two-quarter average wage of $5,000); the other employee earns $12,000 per year (with a two-quarter average wage of $3,000).
The first employee’s unemployment benefits, as determined by the benefits chart cited in T.C.A. § 50-7-301, will be $192 per week for a maximum liability of $4,992 over a 26-week eligibility period.
The second employee will qualify, according to the same chart, for a weekly benefit of $115 per week for a maximum liability of $2,990 over 26 weeks. The maximum 26-week liability for both employees would be $7,982 ($4,992 + $2,990).
A city’s decision whether to be a premium-paying or a reimbursement employer should hinge on an analysis of its liabilities under each option. Generally, a city that experiences little in the way of layoffs or terminations would do well to select the reimbursement option. In most years, this method would likely result in a savings, although such cities should expect a periodic “spike” in its costs should a layoff or termination occur.
Cities opting to be premium-paying employers should enjoy two immediate advantages. First, such cities can calculate, in advance, their annual premiums, then set their annual budgets accordingly. Second, once such premiums are paid, the city will not incur additional, unexpected costs throughout the year when layoffs or terminations occur. The downside, of course, is that a premium paying city must pay its premiums even in those years when it does not experience lay offs or terminations.
Cities that select the reimbursement option can realize considerable savings during those years when it avoids layoffs and terminations. Over a period of years, these savings can be sufficient to offset the occasional unemployment compensation claim filed against the city. The downside is the city’s assumption of risk. If multiple layoffs or terminations occur, a city may be faced with a large, unbudgeted expense to reimburse the Tennessee Department of Labor for paying unemployment compensation claims.
There are several other factors to consider, including:
Short of a detailed history of a problem, the only situations in which employers can avoid paying unemployment compensation are those cases in which the employee is caught stealing or committing some other crime in the scope of his or her employment. However, documenting an employee’s misconduct may help cities avoid paying unemployment compensation. In the case Ralph Williams v. Tennessee Department of Employment Security, the Tennessee Court of Appeals — Eastern Section affirmed that misconduct is sufficient to deny unemployment compensation. Misconduct is “conduct showing willful disregard for any employer’s interest; it is conduct which deliberately violates or disregards the standards of behavior which an employer has the right to expect of an employee.”
Tennessee Unemployment Insurance Handbook for Employers [1], published by the Tennessee Department of Labor, is an excellent manual for private- and public-sector employers and provides a thorough explanation of the Unemployment Insurance Program.
T.C.A. § 50-7-301. The Tennessee law pertaining to unemployment compensation. Includes multiple benefit tables for calculating weekly unemployment compensation benefits.
The Tennessee Department of Labor and Workforce Development, Employment Security Division website for unemployment insurance at http://www.tn.gov/workforce/section/unemployment [2]. This site includes a wide variety of helpful information, including forms, an FAQ sheet, the Handbook for Employers, etc.
Unemployment insurance is a program that provides up to 26 weeks of benefits to Tennessee workers who have lost their jobs through no fault of their own. Most employers in Tennessee participate in this program by paying an unemployment premium on the first [$7,000 in 2019 - subject to change annually] of an employee’s calendar year wages to the Tennessee Department of Labor and Workforce Development (TDLWD). The rate varies from employer to employer but is normally not more than 10 percent of employees’ taxable wages. Municipalities have an option to be a “premium paying” employer, which mirrors the process followed by the private sector in Tennessee, or they can choose to be a “reimbursing” employer. In the latter case, the municipality would reimburse the state for unemployment benefits paid on behalf of former employees of the municipality.
The method the municipality uses determines both the amount and timing of any payments to the state. In both cases, the municipality must accurately report quarterly the employees covered and the amount of wages paid for that quarter. Premium paying municipalities must remit an amount quarterly based on the taxable covered wages for that quarter. Reimbursing municipalities must report the gross wages for each employee; however, they are not required to submit premium amounts with the report. It is important for municipalities to determine who should be included on the quarterly report. That is the focus of the remainder of this brief.
Who is an Employee?
Your standard answer might be “everyone who receives a payroll check from the city.” But for purposes of the Tennessee Employment Security Law, that would be incorrect. T.C.A. § 50-7-207(c) lists several types of activities that are considered “excluded services” under the Tennessee Employment Security Law. Any wages paid to someone for those activities would not be reported on the Wage Report (LB-0851) or Premium Report (LB-0456) filed quarterly with the TDLWD.
The exclusion that affects municipalities is found in T.C.A. § 50-7-207(c)(5)(D). It specifically excludes elected officials, as well as anyone employed by the municipality in a position that is designated by law as “a major nontenured policymaker or advisory position; or a policymaking or advisory position the performance of the duties of which ordinarily does not require more than eight (8) hours per week.” It also excludes an employee working on a temporary basis due to a “fire, storm, snow, earthquake, flood or similar emergency.”
Following are some individuals who under normal circumstances would not be considered employees of the municipality under the Tennessee Employment Security Law:
Correcting an Error
Errors can be corrected for any overstatement of reported wages by filing a Claim for Adjustment or Refund form (LB-0459) [3]. This form is also available from your local Tennessee Employment Security Employer Accounts Office. If the municipality is a “premium paying” employer, a credit for premiums paid will be issued by TDLWD. Since a “reimbursing” employer reimburses TDLWD for their proportionate share of benefits paid to a claimant, they will receive a credit only after TDLWD has received a repayment of benefits from the claimant. Either credit can be applied against future premiums and reimbursements, or a refund the claimant. Either credit can be applied against future premiums and reimbursements, or a refund may be requested. All refund requests must be made be within three years of the payment.
For more information, please contact your MTAS management or finance consultant or any of these resources:
https://www.tn.gov/content/dam/tn/workforce/documents/employers/HandbookforEmployers6-13-19.pdf [4] can be downloaded.
T.C.A. § 50-7-207 contains information on what is considered employment under the Tennessee Employment Security Law.
You may contact the Employment Security Division of the Tennessee Department of Labor and Workforce Development in Nashville at (844) 224-5818 or your area’s Employer Account Office.
Links:
[1] http://www.tn.gov/workforce/employers/tax-and-insurance-redirect/employer-handbook.html
[2] http://www.tn.gov/workforce/section/unemployment
[3] https://www.tn.gov/content/dam/tn/workforce/documents/Forms/LB-0459.pdf
[4] https://www.tn.gov/content/dam/tn/workforce/documents/employers/HandbookforEmployers6-13-19.pdf
DISCLAIMER: The letters and publications written by the MTAS consultants were written based upon the law at the time and/or a specific sets of facts. The laws referenced in the letters and publications may have changed and/or the technical advice provided may not be applicable to your city or circumstances. Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this website.
![]() |