THE IMPACT OF THE TARGETED HARMONIZED

WAGE CODE ON UNEMPLOYMENT INSURANCE

Lalith de Silva, Dominic Rotondi, and Mikel Lasa

Planmatics, Inc.

November 2001
ACKNOWLEDGEMENTS

This report on the Impact of the Targeted Harmonized Wage Code on Unemployment Insurance 

was funded by the U.S. Department of Labor, Employment and Training Administration and the 

Internal Revenue Service. Lalith de Silva, Dominic Rotondi and Mikel Lasa of Planmatics Inc. 

are the primary authors. Eugene Klein, Adrian Millet and William Sullivan also contributed. At 

the U.S. Department of Labor, Esther Johnson and John Heinberg, the Project Officers, directed 

the study, assisted in the design and implementation, and provided continuous feedback. Rett 

Hensley provided many helpful comments and suggestions throughout the project. 

A large number of people participated in the study and contributed to the results. Our thanks to 

Midori Morgan-Gaide and Philip Corn from the Internal Revenue Service, and Ron Moore, a 

contractor to STAWRS, for providing information and feedback. Michael Perry and Robert 

Spriggs of Lake, Snell Perry conducted the focus groups. Larry Sherman and Andrea Coon of 

Paychex Inc. provided the critical payroll data and invaluable assistance. 

Our special thanks to the State Unemployment Insurance administrators in the five states who 

provided data for use in the analysis of THWC impact and assistance before, during and after the 

visits: California, Georgia, Minnesota, Montana, and Pennsylvania.

In California, Bob Affleck, Richard Curry, Judith Hall, James Legler, Jazette Lewis, Richard 

Kihlthau, Paul Wagner, Marie Lopez, Jaime Feliciano, Norval Chan, Kim Heacock, Rick Leach, 

and Rosalie Andris provided assistance. 

In Georgia, Robert Thomas, John Lawrence, Greg Wynn, Marti Colglazier, Mark Watson, Roger 

Salandi, Carla Wright and Cassandra Martin provided assistance.

In Minnesota, Jack Weidenback, David Haney, John Berglund, Jay Mousa, Mustapha Hammida, 

Daniel Dudon and Lee Nelson provided invaluable assistance.
In Montana, Sandy Bay, Bob Liffring, Ward Stiles, Steve Welch, Theresa O’Brien and Mary 

Boswell provided assistance.

In Pennsylvania, Alan Williamson, Pete Cope, Betty Miller, Craig Pontz, Laura Reohr, Jane 

Pomerantz, Marie Burton, Greg Keeley, Bob Kopko, Jim Smathers, Marie Ryan, and Tony 

Newhouse provided invaluable assistance. 
TABLE OF CONTENTS

Executive Summary ....................................................................................................................... i

CHAPTER 1 Introduction....................................................................................................... 1

1.1 Background..................................................................................................................... 1

1.2 The Simplified Wage and Tax Reporting System ............................................................ 2

1.3 The Harmonized Wage Code Project ............................................................................. 4

1.4 The Targeted Wage Code Initiative................................................................................ 5

1.5 Purpose of the Targeted Harmonized Wage Code ......................................................... 6

CHAPTER 2 Research Design.............................................................................................. 10

2.1 Relationship of the THWC to Unemployment Insurance.............................................. 10

2.2 Purpose of the study...................................................................................................... 11

2.3 Data Collection, Sources and Instruments................................................................... 12

2.4 State Selection............................................................................................................... 14

CHAPTER 3 Focus Groups and Site Visits ......................................................................... 15

3.1 Focus Groups and Site Interviews................................................................................ 15

3.2 Focus Group Findings.................................................................................................. 16

3.3 Site Visit Findings......................................................................................................... 23

CHAPTER 4 Impact of THWC on UI Revenue and Benefits............................................ 26

4.1 Data Used for Calculations.......................................................................................... 26

4.1.1 Data Limitations and Assumptions....................................................................... 27

4.2 Overview of Calculations.............................................................................................. 28
4.3 Results of Estimations................................................................................................... 29

4.3.1 California .............................................................................................................. 29

4.3.2 Georgia.................................................................................................................. 37

4.3.3 Minnesota.............................................................................................................. 41

4.3.4 Montana ................................................................................................................ 48

4.3.5 Pennsylvania ......................................................................................................... 55

4.4 Conclusions................................................................................................................... 60

CHAPTER 5 Conclusions and Recommendations.............................................................. 62

5.1 Conclusions................................................................................................................... 62

5.2 Recommendations......................................................................................................... 64

Appendix A.................................................................................................................................. 66

Appendix B .................................................................................................................................. 70

Appendix C.................................................................................................................................. 73

Appendix D.................................................................................................................................. 81
TABLES

TABLE 4.1 Revenue Loss by Industry - California ..................................................................... 30

TABLE 4.1A Impact of THWC Component by Sector................................................................ 31

TABLE 4.2A Total Benefit Reduction......................................................................................... 35

TABLE 4.2B Benefit Reduction for Large Employers................................................................ 35

TABLE 4.2C Benefit Reduction for Small Employers................................................................ 36

TABLE 4.3. Revenue Loss by Industry - Georgia ........................................................................ 37

TABLE 4.3A Impact of THWC Component by Sector................................................................ 38

TABLE 4.4.A Total Benefit Reduction........................................................................................ 39

TABLE 4.4.B Benefit Reduction for Large Employers............................................................... 40

TABLE 4.4.C. Benefit Reduction for Small Employers.............................................................. 41

TABLE 4. 5 Revenue Loss by Industry - Minnesota.................................................................... 42

TABLE 4. 5A Impact of THWC Components by Sector ............................................................. 43

TABLE 4.6.A Total Benefit Reduction........................................................................................ 46

TABLE 4.6.B Benefit Reduction for Large Employers............................................................... 47

TABLE 4.6.C.Benefit Reduction for Small Employers............................................................... 48

TABLE 4.7 Revenue Loss by Industry - Montana ...................................................................... 49

TABLE 4.7A Impact of THWC Components by Sector ............................................................. 50

TABLE 4.8 A. Total Benefit Reduction....................................................................................... 53

TABLE 4.8 B. Benefit Reduction for Large Employers.............................................................. 54

TABLE 4.8 C. Benefit Reduction for Small Employers.............................................................. 55

TABLE 4.9 Revenue Loss by Industry - Pennsylvania ................................................................ 56

TABLE 4.9A Impact of THWC Components by Sector ............................................................. 57

TABLE 4.10.A Total Benefit Reduction...................................................................................... 58

TABLE 4.10.B Benefit Reduction for Large Employers............................................................. 59

TABLE 4.10.C. Benefit Reduction for Small Employers............................................................ 60

TABLE 4.11 Summary of Revenue and Benefit Reductions ....................................................... 61
i

EXECUTIVE SUMMARY

Social programs that provide benefits and protection to workers are generally funded by taxes 

levied on employer payrolls. Key among the laws governing these taxes are the Federal 

Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA) and the 

individual State Unemployment Insurance Laws (SUI). The diversity and complexity of the state 

and federal laws governing taxes and withholding have been identified as creating a burden for 

the business community.

In response to these concerns the federal government established a multi-agency task group 

called the Simplified Tax and Wage Reporting System (STAWRS) to review the tax and wage 

reporting process and to develop strategies for a simplified reporting system to replace the 

multitude of laws currently in effect.

One of the principal initiatives of the STAWRS Group is the Harmonized Wage Code (HWC) 

project. The HWC project group reviewed some 100 laws relating to the reporting of wages by 

employers, both federal and state, to identify the similarities and differences among them and, 

once identified, ascertained whether a measure of harmonization or uniformity would be feasible. 

During this process it became apparent that the differing objectives among income tax 

withholding laws and employment tax laws added materially to the project’s complexities. To 

facilitate their work, the project divided into two segments – one for income tax withholding and 

one for employment tax laws (i.e., FICA, FUTA, and SUI).

The group further recognized that complete harmony was not necessary to achieve a high degree 

of success for a majority of the nation’s employers. The group then focused on employers with 

20 or fewer employees, since they comprise 85% of employers in the United States, and deal 

with fewer of the differing components of wages. 
ii

This approach became known as the Targeted Harmonized Wage Code (THWC). It addresses 

14 elements or components of payroll that are most common to small employers. The intent of 

the THWC is to produce a set of recommendations which, if adopted, more closely harmonizes 

or aligns the wage components identified among the federal and state employment tax laws. 

States could achieve harmony with minimal modifications to existing laws; preferably in some 

cases by administrative action rather than statutory changes; and accomplish a large measure of 

harmony within a relatively short period. The group believed that the proposed changes would 

have minimal negative economic impact on state revenues.

While endorsing the concepts of simplification and efficiency, the U. S. Department of Labor 

made note of the fact that to the extent that in those states where redefinitions could serve to 

reduce wages subject to SUI, there will be a commensurate reduction in SUI revenues financing 

the unemployment insurance system. Further, such redefinitions may reduce the unemployment 

insurance benefits payable to qualified workers or eliminate some of them from eligibility. 

Therefore, DOL and the IRS authorized this study to obtain feedback on what small employers 

perceive to be burdensome in tax and wage reporting systems and obtain suggestions from 

employers, and to determine the probable impact of the THWC on SUI revenues and benefits.

For the task of eliciting opinions on what is perceived to be burdensome in the wage code and 

obtain suggestions for changes and simplification, qualitative input was obtained from interviews 

with UI administrators and focus groups of small employers and payroll processors. 

A number of Unemployment Insurance administrators were of the mistaken opinion that the 

THWC recommendations appear to be addressed to benefit large multi-state employers and 

accounting and payroll providers, and have little or no value to the majority of small employers 

who conduct business in only one state. Legislative staff in the nine states visited were 

unanimous in opinion that if a state is asked to change the way a component is currently reported 

for UI tax purposes and if the removal of the component would result in any significant reduction 

in benefits of individuals by income class or occupational category, it is unlikely that state 

legislatures would be amenable to the proposal.
iii

Approximately fifty small employers were surveyed in focus groups. The majority stated that 

any plan for simplification should not have a negative impact on workers, especially in reducing 

worker benefits even though such a plan might produce an economic or administrative benefit to 

them.

Employer groups interviewed seemed generally unaware of many of the current differences in 

the reporting of some of the wage components for federal and state unemployment purposes. 

Employers are probably not reporting correctly. However, as is stated in the report, they were 

not too concerned with the burden of tracking the different components of wages for federal and 

state requirements. 

Small employers expressed dissatisfaction with the differences in reporting times and payment 

schedules. They would like greater uniformity in this area, including some consolidation of the 

periodic payment processes. Almost everyone was in favor of reporting simplification, but 

looked upon harmonization of wage definitions as being of little value in reducing the employer 

reporting burden when compared to other wage and tax issues of greater concern to them: such 

as treatment variances in sales tax reporting requirements, complications in tip reporting rules, 

severity of penalties for late payment of taxes, difficulty in communicating with the government 

offices, and distinguishing between employees and independent contractors. 

To estimate the impact of the THWC on SUI revenue and benefits, two types of wage record and 

benefit data were needed from a sample of states. A major payroll service with a nationwide 

presence agreed to assist in the study and provided one quarter of employee wage record 

information, disaggregated by the THWC components, for a sample of states for calendar year 

1999. SUI revenue and benefit data on the universe of employers for each of the sampled states 

for 1999 was also needed. Five states provided this needed data: California, Georgia, Minnesota, 

Montana and Pennsylvania. Collectively, these states had a fair representation of the wage 

component differentials in their UI laws. The data from the payroll service and SUI agencies 

were combined and a series of calculations and simulations were performed.
iv

The impact on SUI revenues is the difference between UI taxes collected under current laws and 

the taxes collected if the THWC items were harmonized. The application of the ratios of the 

components in the sample payroll files to the state wage files was tailored to the state being 

studied to recognize the annual taxable wage base limit involved. 

The impact of the THWC on benefits involved a similar set of calculations. The annual dollar 

value of each THWC component derived from the payroll sample was converted to a weekly 

benefit amount (WBA) in keeping with the state’s principal method of computation. Since the 

components represented reductions in gross wages, the conversion represented a potential 

reduction in an individual’s WBA. For each individual in the UI claimant file, an adjustment to 

the WBA was made based on the estimated parameters determined by the payroll sampling. The 

total estimated benefits paid is the sum of all the adjusted WBAs in the UI claimant file. The 

total estimated benefits paid was compared to the actual benefits paid for the time period covered 

by the data to determine the expected impact of the THWC on claimants.

One of the selection criteria used by the STAWRS Group in advancing the THWC initiative was 

to select wage components for harmonization that were most common to the small employer. 

The study’s computations show that the selected components met this criterion, particularly 

when assessing the impact of the relevant components on SUI revenues. The impact on state 

revenue was minimal. However it must be noted that the study was conducted using the most 

current data, therefore the revenue impact was measured for 1999 when average employer 

contribution rates were among the lowest in the past 10 years. Should these rates increase, the 

impact would increase as well. The relative impact on revenues increases as taxable wage bases 

increase because a greater portion of the affected wage components falls within the greater 

taxable wage base.

Unlike revenues the impact on claimant benefits are not directly linked to the taxable wage base. 

Rather, they are more closely related to workers’ occupations, industries in which they are 

employed, and their level of earnings. The number of claimants as a percentage of the entire 
v

claimant population was quite small, less than 1% in the sample states. The impact on claimants 

who would be affected, however is more substantial. The reductions in their weekly benefit rate 

ranges on average from 7% to 30%.

As expected, the major impact would be from the THWC recommendation of the meals and 

lodging provision1 that excludes the value of meals and lodging as designed in determining 

taxable wages and benefits for SUI purposes. At present, 23 states treat meals and lodging as 

wages in their laws and would be affected by this recommendation2. These states include 

California (included in this study), New Jersey, New York, and Texas. They represent in excess

of 26% of the nation’s work force. In terms of impact on affected claims, analysis of 

California’s data indicate the average benefit claim over its duration is $2,433 and the average 

value of the exclusion of the meals and lodging component on affected claims is $487, 

amounting to 20% of the claim of the workers affected. This percentage of reduction, or one 

close to it, could occur in New Jersey, New York and Texas as well.

It is important to remember that the impacts on benefits were measured at a time when benefit 

outlays were near, or at, a 10-year long low. Should there be an increase in unemployment rates, 

the impacts would increase as well. During periods of economic recession, an increase in the 

unemployment rate does not apply equally among all industries or categories of workers. In past 

recessions, those industries associated with hospitality services – hotels, restaurants, resort areas 

– generally sustained an earlier, greater and more prolonged impact than other industries. Since 

the meals and lodging component exists in hospitality services to a far greater degree than in 

other industries, the THWC’s impact on the percentage of affected claimants, benefit duration 

and weekly benefit reductions would be considerably greater. 

 

1

 “This recommendation has caused a great deal of concern in the non-conforming states primarily because of the 

possible impact such payments (payments for meals and lodging) if made excludable might have on the amount of 

revenue available and the payment of benefits.” STAWRS – The Targeted Harmonized Wage Code, August 2000,

p2-8

2

 Prior to 1983, all states and the federal government treated meals and lodging as wages. After 1983, the federal 

law changed to exclude meals and lodging, and, subsequently, 27 states changed their laws to eliminate these items 

as wages. As noted, 23 states did not.
vi

On the basis of the results of this study, we recommend the draft model state legislation that 

incorporates the THWC proposal be advanced by the STAWRS Group to the individual states 

for their consideration. In addition to its stated purpose, it could serve as a point of departure for 

broader discussion on the entire issue of tax reporting and its need for simplification and greater 

utility of available electronic technologies.
1

CHAPTER 1 INTRODUCTION

This report presents the results of a study on the impact of the Targeted Harmonized Wage Code 

on Unemployment Insurance revenue and benefits commissioned by the Employment and 

Training Administration (ETA) of the U.S. Department of Labor (USDOL) and the Internal 

Revenue Service (IRS).

The report begins with an overview of the mission of the Simplified Tax and Wage Reporting 

System group (STAWRS), the Harmonized Wage Initiative and the events leading to the 

Targeted Harmonized Wage Code (THWC). Next, the objectives of this study and the study 

design are described. The report then presents the feedback obtained from selected 

unemployment insurance (UI) administrators, proprietors of small businesses, and payroll 

preparation staff concerning simplification of the tax and wage reporting process and the 

proposed THWC. Next, for sele cted states, the report presents the potential impact of the THWC 

components on UI tax revenues and benefits. Finally, the report presents the findings and 

recommendations.

1.1 Background

Social programs that provide benefits and income protection to workers are generally funded by 

taxes levied on employer payrolls. Chief among the laws governing these taxes are the Federal 

Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA) and State 

Unemployment Insurance Laws (SUI) of the individual states. Each of these laws contains 

provisions applicable to the operation of that particular law that causes employers to question:

• Who is an employer, and how and when is that status determined?

• Under what conditions, and at what point, does an employer become subject to the 

tax?
2

• What activities performed by an individual for an employer are considered 

employment subject to tax?

• What are the kinds of remuneration payable to an employee that are considered 

taxable wages?

• What portion of an employee’s total wages is subject to tax?

• What are the rates of tax imposed on the taxable wages?

• When, and in what format, are these wages and taxes to be reported to the 

appropriate taxing authority? 

While these basic questions are common to each of the payroll taxes, in some jurisdictions, the 

answers are different in their definitions and applicability. These differences are a reflection of 

economic needs prevailing at the times the taxes were enacted and the current social and political 

philosophies of the jurisdiction.

The principal differences are among the individual SUI tax laws and between the SUI taxes and 

the FICA and FUTA laws. These differing provisions and definitions have long been an 

expressed concern to the business community. They are viewed as an administrative burden on 

the reporting process, not only to the perceived complexities of the process itself but in the effort 

needed to remain abreast of any modification of these differences by either the state or federal 

government. This is particularly true for an employer who conducts business in more than one 

state. It is this concern, i.e., differing provisions and definitions, as well as other administrative 

and economic issues, that has given rise to the increasing usage of payroll processing services.

1.2 The Simplified Wage and Tax Reporting System 

The diversity and complexity of the state and federal laws governing taxes and withholding have 

been identified as an important cause of employer burdens.3 In response to these concerns the 

 

3

 STAWRS – The Targeted Harmonized Wage Code, August 2000, p 1-5
3

federal government established a multi-agency task group to review the entire wage reporting 

process and to develop strategies fostering simplification and efficiencies both for the public and 

government. This group became known as the Simplified Tax and Wage Reporting System 

group (STAWRS). It is comprised of representatives of the Department of Labor, the Internal 

Revenue Service, the Department of Treasury, the Social Security Administration, and the Small 

Business Administration. 

The mission of STAWRS is to reduce employer tax and wage reporting burdens while improving 

the effectiveness of government operations. The program’s overall objective is to develop 

strategies for a simplified tax reporting system that would replace the multitude of complex tax

reporting laws currently in effect.4 Among its goals are to encourage simplification in federal and 

state employment laws, to decrease the number of tax and wage forms used in the process, to 

provide leadership in developing increases in electronic usage within the process, and to support 

efforts to develop and promote electronic processing strategies.

Among the many initiatives completed or under development are:

• Analyses of withholding and employment tax laws of some 100 jurisdictions and 

compilation of relevant definitional and reporting requirements into an electronic 

database readily available for use by tax practitioners and the taxing jurisdictions.

• Developing and installing informational websites detailing information useful to 

employers. 

• Assisting states to link their tax informational websites to a national site and to 

each other.

• Streamlining the process of obtaining a federal employer registration number.

• Advancing a process whereby employers would be able to file their annual W-2 

Forms electronically to a single point so that they would be available to multiple 

user jurisdictions.

 

4

 Ibid, p 1-2
4

• Developing an electronic Form 8850 (Pre-Screening for Work Opportunity and 

Welfare-to-Work Credits) for employers.

• Cooperating with software developers to produce an electronic capability to 

enable employers to submit required wage and tax information to a single 

location.

• Assisting in the development of a means for states to receive employers’ reports 

electronically at a single point.

The ongoing work of STAWRS is more fully described at the website www.employers.gov

1.3 The Harmonized Wage Code Project 

One of the principal initiatives of the STAWRS Group is the Harmonized Wage Code project, 

which recognizes that the current tax and wage reporting laws are one of the root causes of the 

burden placed on employers.5 Under Section AO8.2 of the Treasury Department’s Government 

Information Technology Services Plan, the STAWRS Program Office was charged with the 

responsibility of managing the project. In approaching this plan, the STAWRS group was 

expanded to promote participation from representatives of the employer community, payroll 

processors and state unemployment insurance agencies. 

Early on in the HWC project, it became apparent to the project team that the differing objectives 

underlying income tax withholding tax laws and employment tax laws added to their diversity 

and complexities. Income tax withholding tax laws are designed to raise revenues for the 

operation of government. Employment tax laws, while incorporating a revenue-generating 

component, are designed primarily to provide financial benefits to the nation’s workforce –

social security benefits and unemployment insurance benefits. The project was then divided into 

two parts, income tax withholding and employment taxes. 

 

5

 Ibid, p 1-5
5

The starting point of the HWC project was the review of some 100 laws, both federal and state, 

to identify the similarities and differences among them. The differences identified were of such 

variety and magnitude that an approach of gradual implementation might be appropriate if the 

project was to move forward with any degree of timeliness.6 The committee focused on 

employers with 20 or fewer workers because they comprise 85% the majority of employers in 

the United States and deal with fewer provisions in state and federal tax laws than larger 

employers. This approach would provide maximum potential benefits to the greatest number of 

employers in the shortest amount of time.

1.4 The Targeted Wage Code Initiative

The work group recognized that complete harmony among the various laws is not necessary to 

achieve a high degree of success in benefiting most of the nation’s employers. The work group 

sought an approach that would benefit the greatest number of employers.

To meet these criteria, efforts were directed to small employers - those with 20 or fewer workers 

who comprise 85% of the nation’s employer population. As a group, they generally deal with a 

smaller number of wage components yet, in the aggregate, bear the greatest per employee costs 

associated with the payroll reporting process. The differing tax provisions were then examined 

to identify those that are most common to small employers.

This approach became known as the Targeted Harmonized Wage Code (THWC) Initiative 7. It 

addresses 14 components of payroll8. Among the selected components, two are wage inclusions 

 

6

 Ibid, p 1-7

7

 The Targeted Harmonized Wage Code is available for viewing or downloading at www.employers.gov

8

 The 14 components are: vacation pay, health insurance, payments for jury duty, cafeteria plans, meals and lodging, 

moving expenses, group term life insurance, death benefits, dependent care, sick pay, qualified pension plans, tips, 

fringe benefits, and employee business expenses reimbursements. 
6

and 12 are primarily wage exclusions. If an employer must deal with one or more of these 14 

components and they are harmonized, then that employer would have the benefit of a reduction 

in burden because of the reduced number of definitions they have to be concerned with in record 

keeping and reporting.

1.5 Purpose of the Targeted Harmonized Wage Code

The intent of the THWC is to produce a set of recommendations, which if adopted, would more 

closely harmonize or align the several wage components identified among the federal and state 

employment tax laws. Additionally, it is possible that the THWC may be an alternative to the 

Harmonized Wage Code, which addresses the rema ining provisions. Congress and the states 

may find it less difficult to adopt this concept of a less extensive HWC targeted to the benefit of 

smaller employers.

Description of Components

The HWC Project, as a result of the deliberations, selected the 14 wage components. These 

components identified as the Targeted Harmonized Wage Code project, described below, are the 

subject of this analysis.

1. Vacation Pay

These are payments made to an employee for paid vacation time and are considered taxable 

wages. With one minor exception, this component is treated uniformly among all laws.

2. Health Insurance

These are employer payments of all or a portion of health insurance premiums under a plan or 

system for employees or their dependents. The payments are considered non-taxable and this 

treatment is uniform among all laws.
7

3. Payments for Jury Duty

These are wage-continuation payments by an employer to an employee while that employee is 

serving on jury duty. This component is considered taxable and this treatment is uniform among 

all laws.

4. Cafeteria Plans

These are employer plans that offer employees a choice among a variety of benefits, including 

cash. For federal tax purposes in all but 14 states, the receipt of any benefit chosen would be 

taxable to the extent it would otherwise be taxable if there were no plan. For example, a 

payment of cash would be taxable, whereas the payment of health insurance premiums would 

not. For SUI purposes, there appear to be some differing treatments – one being that if one of 

the payment options is cash, then all payments become taxable.

5. Meals and Lodging

The value of meals and lodging is treated as excludable from taxable wages for federal tax 

purposes, under certain described circumstances, i.e., for the convenience of the employer, and 

are provided on the premises of the employer. For SUI purposes, 26 states do not exclude the 

value of meals and lodging under any circumstance and treat their value as taxable wages.

6. Moving Expenses

These are payments made to or on behalf of an employee, directly or indirectly, as payment for, 

or reimbursement of, the cost of business-related moving. The general rule is that these 

payments are treated as non-taxable for both federal and SUI purposes if the payment meets the 

requirements of IRC 217. 

7. Group Term Life Insurance

These are payment of premiums by an employer for Group Term Life Insurance. There are a 

variety of rules designed to assure that this benefit is made available on an equitable basis to all 

employees. The entire premium is excludable from FUTA, whereas only the premiums on the 
8

first $50,000 of coverage are excluded from FICA. SUI laws, in the main, treat all premium 

payments as excludable.

8. Death Benefits

These are payments made to a survivor or the estate of a former employee on account of and 

upon death, under a plan established by the employer for employees. Any payment made after 

the calendar year of death is also not included. Employer provided death benefits are not 

included as wages for FICA, FUTA and SUI.

9. Dependent Care

These are payment for household and/or dependent care or assistance paid directly or indirectly, 

or provided to an employee under a dependent care assistance program that covers only an 

employer’s employees. Payments up to $5,000 excluded from wages. Generally, SUI laws are 

silent on this component and thus are included in wages.

10. Sick Pay

These are amounts paid, directly or indirectly, under a plan established by an employer that is 

available to employees generally or to classes of employees because of temporary absences from 

work due to injury, sickness or disability. For federal purposes, these payments are generally 

included as wages for the first six months. The SUI laws in fifteen states exclude these payments 

from taxable wages.

10a. Sick Pay After Six Months

Sick pay amounts, as described above, paid after six calendar months following the last calendar 

month in which an employee worked are excludable as taxable wages for federal tax laws. Most 

SUI laws follow this treatment.

11. Tips

These are payments made to, or on behalf of an employee that are made by a customer without 

compulsion. Cash tips in excess of $20 per month, reported in writing to the employer, by the 
9

employee, are subject to federal tax. In general, they are taxable for SUI purposes as well, 

except that the conditions and manner in which they are reportable to employers vary in a few of 

the states.

12. Fringe Benefits

Fringe benefits are those benefits that are excludable from gross income under IRC 132, such as: 

no additional cost service – e.g., free seat on plane for airline employees; qualified employee 

discount working condition benefit – e.g., company car for business use; de minimis benefit 

qualified transportation benefit – e.g., passes, parking, etc. Most SUI laws follow the federal 

rules.

13. Employee Business Expense Reimbursement

These are advances or reimbursements to an employee for expenses incurred in the conduct of 

the employer’s business. The general rule for federal tax purposes is that these payments are not 

included in wages if they are substantiated or documented under an accountable plan. 

Conversely, if there is no accounting or an accountable plan, such payments are wages. Most 

SUI laws follow this treatment, although in some cases the accountable plan provision is not as 

precisely defined.

14. Contributions to Qualified Pension Plans

Employer contributions to qualified pension plans are generally excluded from the definition of 

wages for FICA or FUTA. State UI laws follow similar rules.
10

CHAPTER 2 RESEARCH DESIGN

While endorsing the concepts of simplification and efficiency, the U. S. Department of Labor 

noted that to the extent that harmonization could serve to reduce wages in those states which are 

not in harmony, there will likely be a reduction in SUI revenues that finance the unemployment 

insurance system in those states. Further, such harmonization would serve to reduce the weekly 

unemployment benefits payable to qualified workers or possibly eliminate them from eligibility 

entirely. 

2.1 Relationship of the THWC to Unemployment Insurance

Taxable wages, together with the various components that are includable or excludable, are 

critical to the unemployment insurance process. They are the basis for determining employer tax 

liability as well as the amount of benefits that a worker may receive during a period of 

unemployment.

To illustrate the impact on tax revenues, consider the following: An employer has an employee 

in state A and an employee in state B and each earns $20,000 per year. State A has a taxable 

wage base of $10,000 as opposed to state B’s $21,000. (Taxable wage base is that portion of an 

employee’s total wages subject to SUI tax). Consider as well that the reduction in taxable wages 

resulting from these definitional changes is $1,000 per year. There would be no impact in state 

A inasmuch as the portion of the employee’s taxable wages would be unchanged. However, in 

state B taxable wages would be reduced from $20,000 to $19,000 and there would be a 

commensurate reduction in tax paid by the employer.

When considering worker unemployment benefits, there are two types of impacts that can occur. 

First, there are minimum earnings levels in each state that must be met before an unemployed 
11

worker becomes eligible for benefits. If any reduction in wages would drop a worker’s earnings 

below the minimum earnings level, that worker would no longer be eligible for benefits. As 

states have differing minimum earnings levels, an unemployed worker in one state might lose 

eligibility whereas a worker in another state with the same pattern of earnings would retain 

eligibility.

Second, and more likely, is the potential reduction in weekly benefit amounts (WBA). These 

amounts are calculated on a worker’s earnings, generally a combination of annual earnings and 

high-quarter earnings. Any reduction of annual or high-quarter earnings reduces the worker’s 

WBA. The earnings of some workers are well beyond the amount that qualifies them for the 

maximum weekly benefit. If the reduction in annual or high quarter earnings does not fall below 

that amount, the weekly benefit rate would not be reduced. Typically, about one-third of all 

benefit recipients are in this group.

2.2 Purpose of the study

To obtain a more balanced and informed position on implementation of the proposed THWC, 

DOL and the IRS authorized a study to determine the probable impact on UI trust fund inflows 

and outflows and the populations likely to be impacted. This study also provides DOL and the 

IRS feedback from UI agency administrators, small employers, and payroll practitioners on the 

THWC recommendations and on the payroll reporting process in general.

The specific objectives of this study are to:

• Review and validate the data and material contained in the existing HWC 

database that is relevant to the implementation of the THWC in selected states.

• Elicit opinions of employers, payroll preparation companies and other payroll 

practitioners on the advantages and disadvantages of adopting the THWC. This 

includes:
12

- Feedback on what employers perceive to be burdensome requirements in the 

existing wage code, and suggestions for changes and simplification,

- Additional components to be considered for inclusion or deletion from the 

THWC concept.

• Determine the relevant characteristics of the employer population that would be 

affected by the THWC.

• Determine the impact of the THWC on worker eligibility for UI, the amounts of 

benefits payable, and SUI revenue.

2.3 Data Collection, Sources and Instruments 

The first step was to identify the different sources and types of data required for the analyses of 

the specific research areas in a sample of states.

Two types of quantitative data are required:

• Employee wage record information disaggregated by the THWC components is available 

from employers and payroll companies representing employers who process the payroll 

and comply with federal and state reporting requirements. We contacted three payroll 

providers with nationwide presence, verified the existence of the required data items in 

their databases, and requested their participation in the study. One of them, the Paychex 

Corporation, agreed to participate.9 They provided one calendar quarter of disaggregated 

gross wage data for 1999 for a sample of states. Details on the sample are shown in 

Table 1 of appendix A. 

• We also required SUI revenue, benefit, and claimant information on the universe of 

employers for each sample state employment security agency (SESA). SESAs maintain 
13

wage record data by quarter on employment and earnings (size of employer, industry 

type, SIC code, quarterly gross wages and UI taxes paid), UI claims data on entitlements 

(weekly benefit amount, total entitlement), and UI benefits received (number of weeks, 

total benefits). Five states complied with our request for one year’s data.

For the next task of eliciting opinions of stakeholders on what they perceive to be burdensome in 

the existing wage code and suggestions for changes and simplification, qualitative information 

was required:

• In-depth interviews of SESA personnel were required to obtain perspective on the status 

of reporting requirements and burden, filing procedures, mediums, the agencies (private 

and public) involved, and challenges anticipated in implementing the proposed changes. 

We also needed information on previous collaborative experiences of federal and state 

agencies on simplified record keeping and recently implemented changes (if any) to 

validate the information in the HWC database. An interview guide was prepared and a 

package (shown in appendix B) was mailed to each agency listing the types of 

information required of them.

• We also needed input from small businesses owners, CPAs and payroll providers in the 

sample states on the burden of payroll reporting and simplification of tax laws. The 

research instrument used was the focus group10. A pilot questionnaire (shown in 

appendix C) was prepared and field-tested in Minneapolis for the two-hour focus group 

session of 10 to 12 participants.

 

9

 Their cooperation was vital to this research and their ongoing assistance during the data compilation were 

invaluable. 

10 Lake, Snell and Perry in Washington, D.C. conducted the focus groups in California, Georgia, Maryland, and 

Texas. Planmatics staff conducted the focus group in Minnesota.
14

2.4 State Selection 

The next step was the selection of a sample of states. The 12 states selected are: California, 

Connecticut, Georgia, Iowa, Louisiana, Mississippi, Minnesota, Montana, Nevada, New Jersey, 

Pennsylvania, and Texas. We considered the degree of SUI conformity with the THWC 

provisions, geographic distribution, size of population, previous participation in STAWRS 

related activities, and the willingness of state administrators to provide wage record and claims 

files in the formats needed.

The more items that required changes in the way they are reported for SUI in order to conform to 

the THWC, the more significant would be the impact of their removal or inclusion on SUI 

revenues and benefits. Therefore, the primary selection criterion was to select states that had 

several components requiring harmonization. Each state's definition of gross wages was 

researched in the HWC database to select states in which the THWC is likely to have the greatest 

impact. As shown in Table 3 in appendix A, the matrix lists all the states and whether each 

state’s UI law is fully or partially harmonized for each component. Among the 14 components, 

each of the 12 selected states were not in harmony with the THWC for some of the items such as 

meals and lodging, dependent care, sick pay, cafeteria plans and sick pay after six months. Lack 

of harmonization of these specific items was a secondary criterion for selecting states.

Six states were unable to participate; the principal reason given was that their tax and/or benefit 

accounting systems were in the process of change to new or upgraded systems. Another was 

eliminated after the site visit and focus group were conducted because of time and commitment 

constraints. Ultimately, five states provided comprehensive data for the study: California,

Georgia, Minnesota, Montana and Pennsylvania. 
15

CHAPTER 3 FOCUS GROUPS AND SITE VISITS

3.1 Focus Groups and Site Interviews

We used focus groups of small businesses owners, payroll preparation personnel, CPAs and 

other payroll practitioners and site interviews of SESA administrators11 as a method to obtain 

qualitative input on tax and wage reporting in general, as well as to gauge the impact of the 

proposed THWC on small businesses. The objective was to elicit opinions on what they 

perceive to be burdensome in the existing process; suggestions for simplification; advantages and 

disadvantages of adopting the proposed THWC; and additional components to be considered for 

inclusion. In focus groups, people can discuss existing concepts, be introduced to changes to 

existing concepts or proposed new concepts, and given an opportunity to express how they feel 

and what they think in a normal, conversational setting.

We specified the number and types of participants we needed and the focus group coordinators 

identified the appropriate set of potential participants and took care of the logistics. A 

participant’s suitability for the study was determined by using a screening questionnaire. We 

obtained a good cross-section of study participants - predominantly small business owners in 

restaurant and retail services, building maintenance engineers and apartment managers, 

proprietors mostly in service industries who do their own payroll and reporting, CPAs and 

payroll preparation staff. Each session had 10 to 12 participants. The majority were owners or 

managers of small businesses. One of our team members was present at each session to provide 

information on an as needed basis on specific tax-related issues. The sessions were guided by an 

outside moderator, and usually lasted about two hours. For sake of consistency, the same 

protocol was followed in all sessions. Between August 2000 and March 2001, the focus groups 

were conducted in Los Angeles, California; Atlanta, Georgia; Baltimore, Maryland; 

Minneapolis, Minnesota; and Austin, Texas on payroll reporting in general and about the THWC 

specifically.

 

11 We conducted site interviews in California, Georgia, Iowa, Minnesota, Mississippi, Montana, Pennsylvania, 

Texas and New Jersey. 
16

3.2 Focus Group Findings

1. Most small employers conduct business in only one state and the variance among 

federal and SUI laws is of no concern to them. They are concerned with the complexity 

and confusion of the current wage and tax reporting system. 

The process of reporting tax and wages is tedious and complicated to most small employers. 

Numerous and complicated forms, reporting to multiple entities, and different reporting 

periods create an intimidating process for all but the most seasoned small business employer. 

One participant says “burden is the first word that comes to my mind when I think of the 

reporting process. It’s something that can be learnable by someone like me...[but] I don’t 

want to take time to learn how to do all this other stuff...it can be somewhat intimidating 

toward growing the business because the more entities you have to deal with...the more time 

you’re going to have to spend doing all of that...and you have to pay someone... to come out 

to do it...then to top that off, you have to keep up with all the different laws and all the other 

crap they put out...so [it’s a] big time burden.”

Many report that the level of complexity and detail is too much. One participant adds, “I 

think after you have done it for many years, it’s like, you know what you’re doing. You get 

in there and you do it. But if you are just starting out, it’s a definite headache.” Another 

echoed her concern saying, “to me it’s complicated.” When asked what is complicated, a 

number of them say that overall the process is daunting. 

Small business owners find themselves spending time away from their business in order to 

report their taxes and wages correctly. There are too many laws to keep up with, many of 

which change frequently and there is the need to remember to report on time. One 

participant describes what works for him saying, “I have to put [and] keep reminders in my 

computer to pop up every month or every quarter because I have some things- my sales tax is 
17

due semi-annually, I pay my payroll taxes monthly, my federal income tax is quarterly, state 

unemployment is quarterly, and of course at the end of the year, it is really ugly. Because 

then you’ve got the W-2’s and the W-3’s to put in addition to the quarterly things that are due 

at the end, or the year end in January.” Another employer from Austin agrees, saying “it’s 

time consuming, it doesn’t make money for your company. It doesn’t reward your 

employees. It doesn’t show profit. It’s just time consuming paperwork.” 

Some participants are concerned with making mistakes when filing their tax and wage 

reports. One participant from Austin says, “if you do make a mistake it’s the dam’dist thing 

to try and fix with the government... You can’t talk to anybody to ever get an answer 

because you called the IRS line to try to get help and you get a recording and the recording 

takes you to Never-never Land unless you’re willing to wait for a couple of hours...and then 

they won’t do anything until you make some new paperwork and send it to them on the day 

they would like it.” Another participant from Atlanta says, “my fear would be that, say I’ve 

made an error in calculating something, like Unemployment tax rate or something that is 

Department of Labor...will I now all of a sudden be under such penalties, under such 

scrutiny from so many various agencies.”

2. Many small business employers do not understand the current tax and wage laws and 

use an accountant or payroll service company.

Reporting forms and accompanying instructions are intimidating to the point that employers 

engage accountants and payroll preparation services. Approximately one third of the focus 

group participants used payroll services. The other two thirds prepare their own payrolls and 

reports that it takes them about 5 to ten hours per month to report tax and wage information. 

They state that the current system is acceptable once you take time to become familiar with 

it. Most of those who do their own reporting use a small business accounting software 

package. They don’t use an outside service because of the cost of using a payroll service, or 

it is not necessary due to the small size of their business.
18

A significant number of employers report a high level of dissatisfaction with payroll 

companies, such as multiple errors in processing payrolls, problems in solving the errors and 

expense incurred. One participant from Los Angeles reflected, “one of my employees this 

week got paid twice...he opened up his paycheck and it was double.” Another said, “they 

were messing up my taxes and I was getting letters from the IRS. My concern with them 

was, if I wanted it messed up, I could do that myself and not pay [them].”

However, for those who use outside services, the simplicity of the payroll service is still 

attractive. As an employer in Austin states, “[payroll] is easy for us, like I said, we just 

punch the number in and Federal Express brings the checks the next morning.” A participant 

from Los Angeles said, “[payroll services] took some of my load off...it was a lot easier 

[than] doing everything by the seat of my pants.” Another participant who now uses an 

accountant agrees saying, “it [payroll services] took a load off for a very short time that we 

used it, but we got...an accountant to deal with it from there.” The majority of employers, 

whether they do their payroll reporting or rely on a payroll company or an accountant, agree 

that the current reporting process needs an immediate and thorough update.

3. There is an overall feeling that many aspects of the current system need to be changed. 

Many feel that a simplified system of reporting is needed. 

Suggestions include a reduction of repetitive forms, fewer reporting periods, integrating the 

forms into one schedule, and a user-friendly streamlined reporting procedure. Others wish 

for a simple flat tax that would take some mystery out of wage and tax reporting.

There is a call to establish a central reporting agency. One participant from Los Angeles 

says, “the fact that I have to send four different agencies every quarter is a real pain in the 

neck...I’d like to go to one place...[or] if I could do it electronically and just get it to all four 

agencies at the snap of a button...” One employer wishes for the following scenario: “I think 

it should all be put into one pot and let everybody collect their own.” Another participant 

from Austin asks, “let’s say I sent my taxes, $1,000 to one agency...can’t [they] put a 
19

percentage on what each agency get[s] and just dispense the money?’ This theme is common 

throughout. The small business owners are looking for a reasonable path to follow in 

reporting their employees’ wages and taxes to government. “I can’t see why that’s too 

complicated” one business owner complained.

4. Few employers or payroll preparation staff appear to be aware of the various 

components of the gross wage or of the differing tax treatments between the federal 

employment tax laws and state unemployment insurance laws. 

Participants were aware of vacation and sick pay, tips, business expense reimbursement, 

cafeteria plans, and health and group life insurance but unaware of the differing tax 

treatments and reporting requirements. Most were unaware of the remaining components of 

the THWC. Some question what items are included in the definition of income and what are 

not. According to the owner of a small restaurant, “We keep track of what our people eat but 

I don’t think we ever figure on any kind of monetary value for that necessarily.” A 

participant from Austin says, “the way it is down there, there’s real high turnover. So if you 

have three cooks didn’t show and one cook is there we allow him to eat whatever the hell he 

wants just to keep him there.” 

When the differential tax treatment for lodging was discussed, one participant from Los 

Angeles says, “you know as far as the reporting of the free apartment is concerned...I never 

knew it was a big deal.” Another adds, “I’ve worked 50-70 properties in my lifetime, never 

has this been an issue...not one person has ever gotten different wages on Social Security 

wages and ...wages based for state unemployment...this is a total non-issue. If you want to 

make it the same, go right ahead, but I’m telling you it’s not going to make a lick of 

difference to me as an employer.” Employers are probably not reporting when they should 

be, however, they were also not unduly concerned with the burden of tracking the different 

components of wages for federal and state requirements.
20

5. The majority of employers stated that any simplification proposal that results in the 

reduction of UI benefits to unemployed workers should not be undertaken without an 

accompanying proposal to restore such benefit reductions.

The majority feels that any method proposed to simplify the reporting process for employers 

should not have negative effects on their workers. A participant from Los Angeles says, “If 

it weren’t for the side issue of the unemployment benefits I don’t think anybody would have 

an argument with this.” The reduction or loss of unemployment insurance bene fits for lowwage workers was a major concern to the majority. An employer from Atlanta feels very 

strongly about this stating, “I have a major problem with that. [It] seems like they are the 

ones who need the help the most and they are the ones out trying and they may be 

penalized.”

Although the reporting process is burdensome, and harmonizing some of the wage 

components would presumably save employers reporting time, most would rather have this 

remain as it is than have workers suffer. They do not want employees to be adversely 

affected by reduced or no unemployment benefits for which they would otherwise qualify. 

One employer from Atlanta says, “when you start thinking about meals and lodging and 

people doing without or the benefit being cut, when you have someone that’s going from a 

grand a week and you go get Unemployment and it maxed out at $274, you going to drop 

lower than that? How are people going to survive?” 

Some were of the opinion that there should be a better standard to calculate benefits if the 

federal and state definitions of wage components are harmonized. A participant from Austin 

states, “I think if you pay into something, you should get something back, it shouldn’t be to a 

point where there is [a] minimum that you pay in and you don’t get the check for some 

reason...I don’t agree with that.” For those who fall below the minimum requirement, 

participants suggested a minimum level of benefits regardless of the time worked or salary 

earned. One employer from Baltimore said, “There should be a minimum amount of money 
21

that every person will get. The majority if they are unemployed and you can’t go below that. 

That’s apples. What we are talking about here is reporting, and that’s oranges.”

6. A significant number of employers were suspicious and cynical of any efforts taken by 

governmental organizations to simplify the system they created.

Participants believe that the concept of the THWC is a good step towards simplification and 

it is welcomed by most. Many believe that the government cannot simplify the current 

system, and any government involvement makes the process more complicated and more 

bureaucratic. One participant from Austin says, “anytime they simplify they made it more 

complicated.” Another asks, “Why do we want to do this? It can’t possibly be to make our 

lives easier...seriously there’s got to be another underlying reason.” 

Some employers feel skeptical on how effective these efforts will be. An employer from 

Atlanta says, “I’m a little skeptical of it just from whenever I hear tax simplification...it 

doesn’t seem to get much simpler.” Another agrees saying, “you can wish all you want, but 

it’s not going to be any simpler, it’s only going to become more complicated.” An employer 

from Los Angeles is convinced that the government is not here to help small business, but 

rather they have other intentions. 

7. Most participants want the THWC to be implemented. No one had suggestions on 

additional items to be included in the proposed wage code.

A smaller group of employers believed that the benefits of harmonization might outweigh the 

potential reduction in benefits to unemployment insurance claimants. An employer from 

Baltimore says, “If it saves us time, it saves us money.” An employer from Austin says, 

“here you’re saying that there is a potential drawback...there’s also a bunch of places where 

there is potential improvements on the system because of this.” An employer from Austin 

sums it up stating, “anything you do is going to have a plus and a minus...it’s just physics 

right? Typically someone has to pay the price.”
22

Everyone is in favor of reporting simplification, but look upon the harmonization of wage 

definitions as being of little value in reducing the employer reporting burden when compared 

to other wage and tax issues such as variances in sales tax reporting requirements, 

complications in tip reporting rules, severity of penalties for late payment of taxes, difficulty 

in communicating with the government offices, and distinguishing between employees and 

independent contractors.

Employer suggestions for improvement

Following are suggestions that emerged from the focus groups for simplification and improving 

the current reporting system:

• The government should do a better job of notifying employers of tax law proposals so 

that their input could be incorporated. They want more dialogue from the private and 

public sector on how to solve this problem.

• Launch a media campaign to promote simplification efforts – although they had not heard 

of the STAWRS project before, they wanted more information, and were eager to provide 

input to simplifying the reporting process. They were happy that the private sector was 

involved with STAWRS, and this helps ward off suspicions of increased government 

bureaucracy. Some felt the word harmonize is confusing and believe uniform is a better 

word to describe the concept of standardized definitions and components.

• Market this to small business; keeping in mind that they have limited amounts of time to 

assimilate promotional information. All promotional material must be concise, 

digestible, user-friendly, and transferable to fellow colleagues. If it is written in the 

format of a typical IRS document it will be intimidating and difficult to read and most 

likely to be filed away. They want information written in plain English. Ideally, a 

pamphlet should describe 1) who is sponsoring the initiative; 2) the goals of the 

institution; and 3) how this will help small businesses.
23

• Make the goals of the STAWRS and the THWC projects clear – participants welcome the 

efforts of the proposed initiative once they understand them. It is important to stress that 

this is a coalition of public agencies, private corporations, and businesses working 

together to find solutions to a burdensome process of wage and tax reporting.

• Make sure that the system is simple for employers but not at the expense of employeessimply stated, create a system that eases the tax and wage reporting system without 

adversely affecting businesses or their employees.

• Explore central agency reporting and a reduction of repetitive forms – Most of the 

participants want to report their taxes and wages once, to a central authority. Many 

complain of different agencies wanting the same information or subsets or copies of the 

same documents, and taxation based on varying percentages. This has perpetuated the 

level of frustration for most small businesses that do not outsource the service.

• Harmonize the payment and filing requirements for wage and tax reporting – A common 

complaint across groups is the burden of having to file different information at different 

times. The added burden of remembering (or forgetting) which date for which tax to 

report can be as costly as it is frustrating for employers.

• Electronic filing – As long as privacy can be protected and the systems are secure.

3.3 Site Visit Findings

1. Any harmonization proposal that results in the lowering of benefits, or excluding 

claimants eligible under current rules, is a difficult “sell” to the states’ legislators. 

Legislative staff in the nine State Workforce Agencies we visited were unanimous in the 

opinion that if a state is asked to change the way a component is currently reported for UI tax 

purposes, if the removal or inclusion of the wage component results in any significant 

reduction in benefits for individuals by income class and/or occupational category, it is 

extremely unlikely that state legislatures would adopt the THWC. Achieving and 

maintaining harmonization may not be easy. Because of political considerations; 
24

jurisdictions may have different views about some of the components and not legislate 

conformity to them, and SESA departmental and legislative environments may vary over 

time. 

2. The issue of variance between state and federal employment tax provisions is one that, 

in recent memory, has not been raised by employer advisory groups at the local level 

(although it has been raised at the federal level).

State agency personnel do not regard the harmonization of tax and wage related definitions to 

be an issue; almost universally, they do not recall these differing definitions to be an agenda 

item for small business constituencies seeking system improvements. Small employers 

probably ignore or are ignorant of the differing tax treatments between federal employment 

tax laws and State Unemployment Insurance laws and probably lump wages together without 

really distinguishing between them.

3. The information contained in the HWC database is relevant and adequate to the 

implementation of the TWHC in the states selected for study.

The HWC database shows for each state, the number of proposed THWC items where gross 

wages reported for UI purposes are different from those reported for FUTA and FICA. The 

data are current and accurate.

4. The THWC would not help to reduce the burden of small businesses.

State personnel agreed with the primary goal of the HWC Project to reduce employer burden 

and promote government efficiency. However, these recommendations appear to be 

addressed to large multi-state employers and accounting and payroll providers, and do not 

support the majority of small employers’ filing and payment needs. Most small employers 

conduct business only in one state.
25

5. State agencies are pursuing initiatives to improve the tax and wage reporting process 

with and without STAWRS involvement.

Harmonization with the THWC was apparently not one of their priorities and no one offered 

suggestions on additional components to the THWC. Burden reduction was being achieved 

by simplifying and consolidating wage reporting forms, joint registration, common ID 

numbers, and providing employers alternative reporting mediums to file wage information 

(diskettes, greater use of the Internet for filing required reports). 
26

CHAPTER 4 Impact of THWC on UI Revenue and Benefits

4.1 Data Used for Calculations 

The data for this study was gathered from two sources: payroll data was provided by a payroll 

processor and state-specific employer wage record information and UI claimant data were 

provided by state UI agencies.

The sample payroll data file from the payroll company contained:

• The gross wage before deductions for each employee for each pay period during one calendar 

quarter.

• The amount reported for each item under consideration for each employee for each pay 

period during one quarter.

• The gross wages reported for UI tax purposes for each employee for each pay period during 

one quarter.

The sample wage file contained wage records for the second quarter of 1999 (April-June) 

organized by SUI Employer ID, employee Social Security Number, dollar value of THWC

components and gross wages. Each record represented payments made by an employer to an 

employee in that quarter. The list of employer SUI identifiers was sent to each state participating 

in the study to match against their universe. Some of the data elements in the sample file were 

verified, modified, and/or approximated with the help of UI tax personnel. The size of the 

employer and the Standard Industrial Classification Codes (SIC) were added to the payroll data 

file and the data for each state was sorted by 4 digit SIC code and by size12 of employer. From 

that point on, all specific identification was removed. 
27

The data files from each participating state contained:

- The wage file of the universe for 1999 arrayed so that employer size and industry, and 

worker wage levels could be readily identified. 

- The claimant file of the universe arrayed by employer size, industry, Weekly Benefit Amount 

(WBA), maximum benefit amount, duration, and the number of claimants at each WBA.

4.1.1 Data Limitations and Assumptions

The data files were extremely large and presented some difficulty in assembly. In the interest of 

avoiding any expansion of the file, with attendant burdens on the cooperating states, several 

broad assumptions were made to expedite these analyses with the expectation that the 

assumptions would not materially affect the ultimate outcomes. 

The first assumption related to the assignment of a worker to a specific employer. Knowing that 

a worker could have more than one employer in the course of a year and that these multiple 

employers could be in different industries, an assumption was made to identify or assign the 

worker to his or her last employer in the year. Thus any reduction in UI taxes was assigned to 

the last employer where in reality some of the reduction might be assignable to a prior employer.

Another assumption related to workers’ annual earnings and the resultant WBA. In most cases, 

one of the components of the WBA calculations is worker earnings in the high earnings quarter 

of the year. To ask that the states’ wage file be detailed by quarter would have quadrupled the 

database, if it were obtainable at all. Instead, high quarter earnings were assumed to be onequarter of annual earnings. It should be recognized that this was a conservative approach to the 

issue inasmuch as the use of understated high quarter earnings would tend to understate a WBA.

 

12 Employers with less than 20 employees were defined as small employers and those with 20 or more employees 

were considered large employers.
28

4.2 Overview of Calculations

The method of developing the model for predicting the impact of the THWC on UI benefits and 

on UI tax revenues is explained below. 

The impact of the THWC on revenues would be the difference between UI taxes collected 

under the current law and the taxes collected if the items under consideration were excluded13. 

The amount of UI taxes currently collected is known. The amount of UI taxes to be collected 

under the THWC scenario was estimated as follows:

• Sample payroll data were stratified by SIC Code, wage level and employer size.

• For each stratum, the average amount per employee reported for the items under 

consideration was estimated from the payroll data.

• For each stratum, the estimated amount was subtracted from the average net wages in the 

stratum reported for UI tax purposes to determine the amount reported under the THWC 

scenario.

• For each stratum, the average UI taxes per employee were calculated based on the adjusted 

average wages.

• For each stratum, the amount of the tax was multiplied by the number of employees in the 

stratum.

• The taxes over all strata were summed to produce the impact on SUI revenues. 

The application of the ratios of the components of the sample payroll data to the wage file for the 

universe was tailored to the state being studied. This was necessary to reflect the annual taxable 

wage base limit involved. Specifically, if the value of the occurrence were applied to a worker 

whose wage scale was within the annual taxable wage base, then the result would affect the 

 

13 Or added, in the case of vacation pay, jury pay, and first six months of sick pay. 
29

employer’s UI tax liability. Conversely, if such value exceeded the annual taxable wage base, it 

would have no effect on the employer’s UI tax liability. 

The impact of the THWC on benefits involved a similar set of calculations. The payroll data 

were again used to estimate parameters that describe the expected impact of each item on wages. 

The annual value of each THWC component derived from the payroll sample was converted to a 

WBA in keeping with the state’s principal method of computation. As the wage components 

represent reductions in gross wages, the conversion represented a potential reduction in an 

individual’s WBA. For each individual in the UI claimant file, an adjustment to the WBA was 

made based on the estimated parameters determined by the payroll sampling. The total 

estimated benefits paid are the sum of all of the adjusted WBAs in the UI claimant file. The total 

estimated benefits paid were compared to the actual benefits paid for the time period covered by 

the data to determine the expected impact of the THWC on claimants. A more detailed 

description of the estimation process is in appendix 3.

4.3 Results of Estimations

4.3.1 California

The California SUI statute does not include the meals and lodging exclusion provision and 

considers all meals and lodging as wages subject to the SUI tax and includible in the calculation 

of UI benefits. The THWC recommendation is to adopt the provision to exclude from wages 

meals and lodging that it is reasonable to believe are excludable from Section 119 of the Internal 

Revenue Code.

Impact on SUI Revenue

The SUI definition of taxable wages is also used in the state’s Disability Insurance Program. 

Thus, a decrease in revenue would occur in that program as well, although no attempt has been 

made to quantify any such impact. 
30

As shown in Table 4.1 Revenue Loss by Industry, the total UI revenue collected in 1999 was 

$2.7 billion. The estimated revenue loss due to the THWC would be $5.1 million, or 0.2% of the 

$2.7 billion collected. It should be noted here that the SUI system is used to assess and collect 

the state’s Employment and Training Tax. The annual loss of revenue associated with this tax is 

estimated to be $65,000. Additionally, it should also be noted that with the state’s taxable wage 

base set at $7,000, fully 60% of the reduction in taxable wages associated with the exclusion of 

this wage component is above this base and would have no impact on revenue. 

TABLE 4.1 Revenue Loss by Industry - California

Industry Groups Revenue Loss

Construction $ 363,428 

Manufacturing $ 76,361 

Transportation $ 6,607 

Wholesale $ 3,929 

Retail $ 127,882 

Finance $ 4,210,795 

Services $ 343,511 

Total Revenue Loss $ 5,132,513 

Total Revenue Collected $ 2,728,141,316 

Percentage Reduction 0.2%

Table 4.1A Impact of TWHC Component by Sector, shown below, shows the impact of the 

exclusion of the meals and lodging component by sector and by salary level.
31

TABLE 4.1A Impact of THWC Component by Sector

Construction 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 1,396,565 80,775 415,640

No. of Wage Records in Sample 1,668 423 22,932

Percent of Sample to Universe 0.1% 0.5% 5.5%

No. of Wage Records with Component 25 3 32

Percent of Affected Wage Records in Sample 1.5% 0.7% 0.1%

Average value of each occurrence in Sample $ 445 $ 1,486 $ 5,142 

No. of Wage Records Affected in Universe 20,932 573 580

Reduction in taxable wages $ 9,314,620 $ 851,288 $ 2,982,342 

Average tax rate 3.59% 3.59% -

Average tax rate x Reduction $ 334,395 $ 30,561 -

Revenue loss $ 334,395 $ 29,033* 

Industry Total Loss $ 363,428

*Partial loss from Wages falling under the Taxable Wage Base

Manufacturing 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 778,223 115,454 1,933,227

No. of Wage Records in Sample 1,857 563 22,932

Percent of Sample to Universe 0.2% 0.5% 1.2%

No. of Wage Records with Component 36 2 32

Percent of Affected Wage Records in Sample 1.9% 0.4% 0.1%

Average value of each occurrence in Sample $ 171 $ 194 $ 597 

No. of Wage Records Affected in Universe 15,087 410 2,698

Reduction in taxable wages $ 2,579,828 $ 79,567 $ 1,610,517 

Average tax rate 2.88% 2.88% -

Average tax rate x Reduction $ 74,299 $ 2,292 -

Revenue loss $ 74,299 $ 2,062* 

Industry Total Loss $ 76,361

*Partial loss from Wages falling under the Taxable Wage Base
32

Transportation 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 362,647 44,929 676,054

No. of Wage Records in Sample 1,269 295 5,107

Percent of Sample to Universe 0.3% 0.7% 0.8%

No. of Wage Records with Component 1 0 21

Percent of Affected Wage Records in Sample 0.1% 0.0% 0.4%

Average value of each occurrence in Sample $ 800 $ - $ 4,967 

No. of Wage Records Affected in Universe 286 0 2,780

Reduction in taxable wages $ 228,619 $ - $ 13,807,943 

Average tax rate 2.89% 2.89% -

Average tax rate x Reduction $ 6,607 $ - -

Revenue loss $ 6,607 $ - 

Industry Total Loss $ 6,607

Wholesale 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 379,953 53,159 775,902

No. of Wage Records in Sample 0 393 18,733

Percent of Sample to Universe 0.0% 0.7% 2.4%

No. of Wage Records with Component 0 3 30

Percent of Affected Wage Records in Sample - 0.8% 0.2%

Average value of each occurrence in Sample - $ 380 $ 1,672 

No. of Wage Records Affected in Universe - 406 1,243

Reduction in taxable wages - $ 154,202 $ 2,077,577 

Average tax rate 2.66% 2.66% -

Average tax rate x Reduction - $ 4,102 -

Revenue loss - $ 3,929* 

Industry Total Loss $ 3,929

*Partial loss from Wages falling under the Taxable Wage Base
33

Retail 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 2,923,233 247,923 1,468,446

No. of Wage Records in Sample 0 2,342 22,055

Percent of Sample to Universe 0.0% 0.9% 1.5%

No. of Wage Records with Component 0 271 2,220

Percent of Affected Wage Records in Sample - 11.6% 10.1%

Average value of each occurrence in Sample - $ 351 $ 618 

No. of Wage Records Affected in Universe - 28,688 147,810

Reduction in taxable wages - $ 10,069,464 $ 91,346,596 

Average tax rate 2.54% 2.54% -

Average tax rate x Reduction - $ 255,764 -

Revenue loss - $ 127,882* 

Industry Total Loss $ 127,882

*Partial loss from Wages falling under the Taxable Wage Base

Finance 

Worker Salary Levels

$1 to $7,000 $7,000 to $9,000 over $9,000 

No. of Wage Records in Universe 379,447 54,413 798,229

No. of Wage Records in Sample 0 149 893

Percent of Sample to Universe 0.0% 0.8% 1.7%

No. of Wage Records with Component 0 149 893

Percent of Affected Wage Records in Sample - 32.9% 6.6%

Average value of each occurrence in Sample - $ 4,402 $ 5,010 

No. of Wage Records Affected in Universe - 17,897 52,599

Reduction in taxable wages - $ 78,782,594 $ 263,519,825 

Average tax rate 5,51% 5,51% -

Average tax rate x Reduction - $ 4,341,026 -

Revenue loss - $ 4,210,795* 

Industry Total Loss $ 4,210,795

*Partial loss from Wages falling under the Taxable Wage Base
34

Services 

Worker Salary Levels

MEALS AND LODGING $1 to $7,000 $7,000 to $9,000 over $9,000 

SERVICES

No. of Wage Records in Universe 4,850,944 398,294 3,522,720

No. of Wage Records in Sample 0 2,452 75,130

Percent of Sample to Universe 0.0% 0.6% 2.1%

No. of Wage Records with Component 0 80 783

Percent of Affected Wage Records in Sample - 3.3% 1.0%

Average value of each occurrence in Sample - $ 1,674 $ 4,024 

No. of Wage Records Affected in Universe - 12,995 36,714

Reduction in taxable wages - $ 21,753,480 $147,735,365 

Average tax rate 2.79% 2.79% -

Average tax rate x Reduction - $ 606,922 -

Revenue loss - $ 343,511* 

Industry Total Loss $ 343,511

*Partial loss from Wages falling under the Taxable Wage Base

Impact on SUI Benefits

As indicated in table 4.2A Total Benefit Reduction, the exclusion of meals and lodging from the 

calculation of claimants’ benefits reduces annual benefit outlays by an estimated $3.7 million, or 

0.2% of the total annual outlay of $2.0 billion.

About 7600 claimants, or 1% of the claimant population, would experience WBA reductions 

averaging $23 per week, or $487 over the 21-week average duration of the claims. While this 

reduction is about 0.2% of the total benefit outlay, it represents almost a 20% reduction for the 

7600 affected claimants. Additionally, 660 claimants, or 0.1% of the claimant population would 

lose their eligibility entirely.
35

TABLE 4.2A Total Benefit Reduction

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Paid

Total Benefit 

Reduction

Benefit 

Reduction 

to Total 

Benefit Paid

Agriculture 156,864 0 0% $0 18 $364,509,391 $0 0%

Mining 2,010 0 0% $0 21 $5,684,345 $0 0%

Construction 85,992 225 0.3% $19 20 $206,657,744 $85,820 0.04%

Manufacturing 146,248 189 0.1% $22 21 $402,663,591 $86,163 0.02%

Transportation 36,376 531 1% $18 21 $93,057,837 $199,647 0.21%

Wholesale 41,535 346 1% $23 21 $109,862,217 $169,239 0.15%

Retail 90,370 4,188 5% $16 20 $175,725,135 $1,364,080 0.78%

Finance 38,355 565 1% $95 22 $113,564,175 $1,182,676 1.04%

Services 239,189 1,579 1% $18 20 $565,142,019 $574,260 0.10%

Total 836,939 7,623 1% $23 21 $2,036,866,454 $3,709,335 0.18%

Lost all Benefits 660 0.1%

TABLE 4.2B Benefit Reduction for Large Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 131,220 0 0% $0 18 $0

Mining 1,582 0 0% $0 21 $0

Construction 59,313 146 0% $19 20 $55,860

Manufacturing 128,007 189 0% $22 21 $86,163

Transportation 29,436 451 2% $18 21 $173,460

Wholesale 29,728 332 1% $24 21 $165,963

Retail 69,928 3,391 5% $16 20 $1,117,960

Finance 30,608 424 1% $99 22 $924,132

Services 189,134 1,288 1% $17 20 $448,440

Total 668,956 6,221 1% $23 21 $3,011,085

Lost all Benefits 529 0.1%
36

TABLE 4.2C Bene fit Reduction for Small Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 25,644 0 0% $0 18 $0

Mining 428 0 0% $0 21 $0

Construction 26,679 79 0% $19 20 $29,960

Manufacturing 18,241 0 0% $0 21 $0

Transportation 6,940 80 1% $16 21 $26,187

Wholesale 11,807 14 0% $11 21 $3,276

Retail 20,442 797 4% $15 20 $246,120

Finance 7,747 141 2% $83 22 $258,544

Services 50,055 291 1% $22 20 $125,820

Total 167,983 1,402 1% $24 21 $698,250

Lost all Benefits 131 0.08%

The distribution of the claimant population between large and small employers is 80% and 20%, 

respectively. This is substantially the same distribution as the overall reduction in benefits. The 

distribution of the reduction in benefits is greatest in retail and finance sectors. While these two 

industries account for 15% of the total benefits paid, their share of the benefit reductions would 

be in excess of 72%. These variations are attributable to the hospitality and restaurant industries, 

which generally provide meals to their employees, and the real estate industry, which provides 

apartment rentals to building superintendents at reduced or no cost.

No attempt was made to adjust these findings for the value of any meals or lodgings that might 

not meet the “convenience of the employer” requirement. Although no data are currently 

available for these components, based on interviews with UI administrators, it is believed that 

they would be relatively infrequent and would not significantly alter the results stated above. 
37

4.3.2 Georgia

The recommendations of the THWC are to adopt provisions that meals and lodging and 

dependent care assistance program payments be excluded from wages. Each of these 

components is treated as wages under Georgia’s UI statute, i.e., there is no exclusion.

Impact on SUI Revenues

The following tables display the impact of the THWC recommendations on annual SUI 

revenues, using calendar year 1999 data. As shown in Table 4.3 Revenue Loss by Industry, the 

total revenue collected in 1999 was $122.8 million. The estimated loss of revenue due to the 

THWC is insignificant ($1,787).

TABLE 4.3. Revenue Loss by Industry - Georgia

Industry Groups Revenue Loss

Retail $ 1,787

Total Revenue Loss $ 1,787 

Total Revenue Collected $ 122,841,254 

Percentage Reduction 0.001%

Table 4.3A Impact of TWHC Component by Sector shows the impact on of the exclusion of the 

meals and lodging component in the retail sector by salary level. The major portion of the 

impact of meals and lodging component, over 90% of the total reduction in taxable wages, 

occurs among workers earning over $8,500 thus having no impact on revenues. The remaining 

reduction occurring among workers earning $8,500 per year or less produces an annual reduction 

in revenues of $1,787 or 0.001% of the annual revenue of $122.8 million. The state of Georgia 

levies an Administrative Assessment in conjunction with the SUI tax. However, the rate is such 

that its application to the resultant reduction in taxable wages would be negligible.
38

TABLE 4.3A Impact of THWC Component by Sector

Retail (Meals &Lodging)

Worker Salary Levels

$1 to $8,500 $8,500 to $10,500 over $10,500 

No. of Wage Records in Universe 1,198,206 55,779 312,574

No. of Wage Records in Sample 21,936 571 9,902

Percent of Sample to Universe 1.8% 1.0% 3.2%

No of Wage Records with Component 11 0 0

Percent of Affected Wage Records in Sample 0.05% 0.00% 0.00%

Average value of each occurrence in Sample $ 313 $ - $ 2,488 

No. of Wage Records Affected in Universe 601 0 0

Reduction in taxable wages $ 188,066 $ - $ - 

Average tax rate 0.95% 0.95% -

Average tax rate x Reduction $ 1,787 $ - $ - 

Revenue loss $ 1,787 $ - 

Industry Total Loss $ 1,787

The available data suggests that the exclusion of dependent care payment occurs principally 

among workers earning over $10,500 per year. As the state’s taxable wage base is $8,500 per 

year, these occurrences have no impact on annual revenues. More than 25,000 wage records for 

workers earning $8,500 or less per year were examined and none were identified as having 

participation in the dependent care program. No single reason for this has been identified except 

that it is likely that this benefit may generally be included in regular cafeteria plan arrangements 

or is too costly for workers at this wage level. 

Impact on SUI Benefits

As indicated in Table 4.4A, the adoption of the THWC recommendations reduces claimant 

benefits by $425,000 or 0.15% of the total annual benefit outlay of $290 million. Additionally, 

the THWC proposal to exclude meals and lodging and dependent care from taxable wages would 
39

result in 39 claimants losing their eligibility, as their earnings would decline below the minimum 

required to be eligible for benefits.

TABLE 4.4.A Total Benefit Reduction 

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Paid

Total Benefit 

Reduction

Benefit 

Reduction 

to Total 

Benefit Paid

Agriculture 718 0 0% $0 18 $2,441,184 $0 0%

Mining 1,263 0 0% $0 21 $381,851 $0 0%

Construction 9,910 0 0% $0 20 $30,036,493 $0 0%

Manufacturing 58,055 0 0% $0 21 $94,266,912 $0 0%

Transportation 4,086 0 0% $0 21 $13,227,461 $0 0%

Wholesale 5,845 169 3% $14 21 $19,224,276 $49,980 0.26%

Retail 12,174 120 1% $13 20 $23,829,911 $30,140 0.13%

Finance 3,217 21 1% $42 22 $13,178,408 $19,426 0.15%

Services 26,429 1,184 4% $13 20 $72,850,951 $309,460 0.42%

Public A. 1,389 0 0% $0 20 $3,856,008 $0 0%

Non Classifiable 4,276 0 0% $0 21 $16,897,392 $0 0%

Total 127,362 1,494 1% $14 21 $290,190,847 $425,103 0.15%

Lost all Benefits 39 0.03%

The distribution of the claimant population between large and small employers is 87% and 13%, 

respectively. The distribution of the reduction in benefits by sector between large and small 

employers and industries is shown in Tables 4.4B and C. The distribution of the total benefit 

reduction is 91% and 9% respectively. The reduction in benefits is greatest in the services 

industry. While 24% of all benefits were paid to workers in this industry, they account for 72% 

of the benefit reductions. 
40

TABLE 4.4.B Benefit Reduction for Large Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 170 0 0% $0 18 $0

Mining 904 0 0% $0 21 $0

Construction 7,790 0 0% $0 20 $0

Manufacturing 55,148 0 0% $0 21 $0

Transportation 3,275 0 0% $0 21 $0

Wholesale 4,271 130 3% $15 21 $41,223

Retail 9,414 90 1% $14 20 $25,800

Finance 2,290 14 1% $46 22 $14,146

Services 21,448 1,002 5% $13 20 $256,320

Public A. 1,358 0 0% $0 20 $0

Non Classifiable 4,079 0 0% $0 21 $0

Total 110,147 1,236 1% $14 21 $350,952

Lost all Benefits 36 0.03%
41

TABLE 4.4.C. Benefit Reduction for Small Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 548 0 0% $0 18 $0

Mining 359 0 0% $0 21 $0

Construction 2,120 0 0% $0 20 $0

Manufacturing 2,907 0 0% $0 21 $0

Transportation 811 0 0% $0 21 $0

Wholesale 1,574 39 2% $11 21 $8,757

Retail 2,760 30 1% $7 20 $4,340

Finance 927 7 1% $34 22 $5,280

Services 4,981 182 4% $15 20 $53,140

Public A. 31 0 0% $0 20 $0

Non Classifiable 197 0 0% $0 21 $0

Total 17,215 258 1% $14 21 $74,151

Lost all Benefits 3 0.02%

4.3.3 Minnesota

The THWC recommendations are to adopt the following provisions in the determination of 

taxable wages:

• Change law to recognize a valid cafeteria plan as a bar to the constructive receipt of 

wages if the item chosen would not otherwise be wages.

• Adopt provision to exclude from wages dependent care assistance program 

payments.

• Exclude meals and lodging that are provided for the convenience of the employer.

• Adopt the federal accountable plan standards to determine the taxability of 

employee travel and business expenses.
42

These four components currently are wholly or partially treated as wages under the Minnesota 

SUI law.

Impact on SUI Revenues

Table 4.5 Revenue Loss by Industry displays the impacts of the four components on annual SUI 

revenues on retail, finance, services and construction industries using calendar year 1999 data. 

The total revenue collected in 1999 was $367 million. The overall annual revenue loss due to the 

THWC is estimated to be $191,000, or 0.05% of the $367 million collected. The major portion 

of the meals and lodging exclusion falls on the finance industry. This is attributable in large 

measure to the value of free or reduced housing provided to apartment building superintendents. 

Also, because the taxable wage base is $18,100, well over half of the calculated exclusion results 

in lost revenue, in this case $191,000 or about 0.05% of annual revenues. The remaining 

industries do not show any significant reductions in revenue. 

TABLE 4. 5 Revenue Loss by Industry - Minnesota

Industry Groups Revenue Loss

Construction $ 7,101 

Retail $ 692 

Finance $ 180,834 

Services $ 2,638 

Total Revenue Loss $ 191,265 

Total Revenue Collected $ 367,000,000 

Percentage Reduction 0.1%

Table 4.5A shows the impact of the exclusion of the THWC components by sector by salary 

level.
43

TABLE 4. 5A Impact of THWC Components by Sector

Retail (Meals &Lodging)

Worker Salary Levels

$1 to $18,100 $18,100 to $20,100 over $20,1000 

No. of Wage Records in Universe 401,641 15,820 124,785

No. of Wage Records in Sample 5,212 260 2,309

Percent of Sample to Universe 1.3% 1.6% 1.9%

No. of Wage Records with Component 8 0 0

Percent of Affected Wage Records in Sample 0.2% 0.0% 0.0%

Average value of each occurrence in Sample $ 187 $ 1,486 $ 5,142 

No. of Wage Records Affected in Universe 616 0 0

Reduction in taxable wages $ 115,283 $ - $ - 

Average tax rate 0.60% 0.60% -

Average tax rate x Reduction $ 692 $ - $ - 

Revenue loss $ 692 $ - 

Industry Total Loss $ 692

Finance (Meals &Lodging)

Worker Salary Levels

$1 to $18,100 $18,100 to $20,100 over $20,1000 

No. of Wage Records in Universe 47,639 6,050 115,391

No. of Wage Records in Sample 797 107 1,992

Percent of Sample to Universe 1.7% 1.8% 1.7%

No. of Wage Records with Component 83 5 39

Percent of Affected Wage Records in Sample 10.4% 4.7% 2.0%

Average value of each occurrence in Sample $ 4,894 $ 5,785 $ 7,301 

No. of Wage Records Affected in Universe 4,961 283 2,259

Reduction in taxable wages $24,279,871 $ 1,635,479 $ 16,494,136 

Average tax rate 0.70% 0.70% -

Average tax rate x Reduction $ 169,959 $ 11,448 -

Revenue loss $ 169,959 $ 10,895* 

Industry Total Loss $ 180,834

*Partial loss from Wages falling under the Taxable Wage Base
44

Services (Dependent Care)

Worker Salary Levels

$1 to $18,100 $18,100 to $20,100 over $20,1000 

No. of Wage Records in Universe 538,745 36,548 454,437

No. of Wage Records in Sample 3,048 357 10,084

Percent of Sample to Universe 0.6% 1.0% 2.2%

No. of Wage Records with Component 2 0 1

Percent of Affected Wage Records in Sample 0.1% 0.0% 0.0%

Average value of each occurrence in Sample $ 533 $ - $ 1,458 

No. of Wage Records Affected in Universe 354 0 45

Reduction in taxable wages $ 188,419 $ - -

Average tax rate 0.80% 0.80% -

Average tax rate x Reduction $ 1,507 $ - -

Revenue loss $ 1,507 $ - 

Industry Total Loss $ 1,507

Construction (Cafeteria Plan)

Worker Salary Levels

$1 to $18,100 $18,100 to $20,100 over $20,1000 

No. of Wage Records in Universe 64,335 5,051 93,788

No. of Wage Records in Sample 668 68 1,475

Percent of Sample to Universe 1.0% 1.3% 1.6%

No. of Wage Records with Component 1 0 1,799

Percent of Affected Wage Records in Sample 0.1% 0.0% 122.0%

Average value of each occurrence in Sample $ 1,536 $ - $ 618 

No. of Wage Records Affected in Universe 96 0 114,390

Reduction in taxable wages $ 147,932 $ - $ 70,692,753 

Average tax rate 4.80% 4.80% -

Average tax rate x Reduction $ 7,101 $ - -

Revenue loss $ 7,101 $ - 

Industry Total Loss $ 7,101
45

Services (Cafeteria Plan)

Worker Salary Levels

$1 to $18,100 $18,100 to $20,100 over $20,1000 

No. of Wage Records in Universe 538,745 36,548 454,437

No. of Wage Records in Sample 3,048 357 10,084

Percent of Sample to Universe 0.6% 1.0% 2.2%

No. of Wage Records with Component 1 0 11

Percent of Affected Wage Records in Sample 0.01% 0.0% 0.1%

Average value of each occurrence in Sample $ 800 $ - $ 964 

No. of Wage Records Affected in Universe 177 0 496

Reduction in taxable wages $ 141,403 $ - $ 477,871 

Average tax rate 0.80% 0.80% 0.80%

Average tax rate x Reduction $ 1,131 $ - $ 3,823 

Revenue loss $ 1,131 $ - 

Industry Total Loss $ 1,131

Over 150,000 payroll records were examined. The incidence of worker participation for those 

earning $20,100 or less in the dependent care assistance program was negligible. The reason for 

this may be that these kinds of payments may be included in regular cafeteria plan arrangements 

or may be too costly for workers at these wage levels. The majority of the occurrences were in 

the construction industry and other industries had only limited participation.

Cafeteria plan participation was high for workers earning more than $20,100 per year in the 

construction and service industries. Because this salary level was beyond the state’s taxable 

wage base of $18,100, the impact on total revenues was only about $8,000 per year. 

The incidence of reporting of taxable employee travel and business expenses for all industries 

was almost negligible, resulting in a potential revenue loss of about $1,000 per year.
46

Impact on SUI benefits

The following tables 4.6A, B and C describe the impact of the recommendations on annual SUI 

benefits using 1999 calendar year data. As shown in Table 4.6A, the overall reduction in 

benefits resulting from these recommendations is estimated to be $153, 000, or 0.04% of the 

annual benefits paid. About $100,000 of this reduction affected employers with 20 or more 

employees, principally in the construction industry. The remaining reduction of about $53,000 

fell on smaller employers, also in the construction industry. Overall, the percentage reduction 

for large and small employers is about equal. Forty-eight workers lost eligibility for benefits 

because their earnings dropped below the minimum earnings requirements. Although 30% of the 

benefits were paid to workers in the construction industry, about one half of the benefit reduction 

was assignable to them.

TABLE 4.6.A Total Benefit Reduction

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Paid

Total Benefit 

Reduction

Benefit 

Reduction 

to Total 

Benefit Paid

Agriculture 3,607 0 0% $0 16.09 $8,625,431 $0 0%

Mining 2,099 0 0% $0 11.87 $6,626,275 $0 0%

Construction 34,390 314 1% $16 15.01 $103,643,126 $76,056 0.07%

Manufacturing 30,616 0 0% $0 13.91 $76,045,863 $0 0%

Transportation 5,731 0 0% $0 15.74 $16,858,519 $0 0%

Wholesale 7,560 0 0% $0 14.93 $20,500,951 $0 0%

Retail 10,788 38 0% $16 15.77 $21,948,809 $9,494 0.04%

Finance 3,872 13 0% $144 16.23 $12,026,410 $30,431 0.25%

Services 27,180 199 1% $13 15.4 $66,053,838 $40,995 0.06%

Public A. 2,215 0 0% $0 18.31 $6,482,506 $0 0%

Non Classifiable 2,309 0 0% $0 15.4 $4,647,334 $0 0%

Total 130,367 564 0% $18 15.01 $343,459,063 $153,192 0.04%

Lost all Benefits 48 0.04%
47

TABLE 4.6.B Benefit Reduction for Large Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 2,164 0 0% $0 16.09 $0

Mining 1,259 0 0% $0 11.87 $0

Construction 20,634 198 1% $17 15.01 $49,436

Manufacturing 18,370 0 0% $0 13.91 $0

Transportation 3,439 0 0% $0 15.74 $0

Wholesale 4,536 0 0% $0 14.93 $0

Retail 6,473 24 0% $16 15.77 $6,171

Finance 2,323 8 0% $149 16.23 $19,780

Services 16,308 125 1% $14 15.4 $26,647

Public A. 1,329 0 0% $0 18.31 $0

Non Classifiable 1,385 0 0% $0 15.4 $0

Total 78,220 355 0% $19 15.01 $99,575

Lost all Benefits 30 0.04%
48

TABLE 4.6.C.Benefit Reduction for Small Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit

Reduction

Agriculture 1,443 0 0% $0 16.09 $0

Mining 840 0 0% $0 11.87 $0

Construction 13,756 116 1% $15 15.01 $26,619

Manufacturing 12,246 0 0% $0 13.91 $0

Transportation 2,292 0 0% $0 15.74 $0

Wholesale 3,024 0 0% $0 14.93 $0

Retail 4,315 14 0% $15 15.77 $3,323

Finance 1,549 5 0% $136 16.23 $10,651

Services 10,872 74 1% $13 15.4 $14,348

Public A. 886 0 0% $0 18.31 $0

Non Classifiable 924 0 0% $0 15.4 $0

Total 52,147 209 0% $17 15.01 $53,617

Lost all Benefits 18 0.03%

4.3.4 Montana

The THWC recommendations are to:

• Change the administrative position to recognize a valid cafeteria plan as a bar to the 

constructive receipt of wages if the item chosen would not otherwise be wages.

• Amend rules to exclude from wages dependent care assistance program payments.

• Exclude meals and lodging that are provided for the convenience of the employer.
49

These components are treated as wages under the Montana SUI law. The size of the sample 

obtained from payroll records was much too small to produce meaningful results. Because of 

this, the results obtained from the Minnesota sample were used as statistical proxies in the 

revenue analyses.

Impact on SUI revenues

Table 4.7 Revenue Loss by Industry shows the impact of the recommendations on annual SUI 

revenues using 1999 calendar year data. The overall revenue loss is estimated to be $56,000 or 

.01% of annual UI revenues of $61.5 million. The major portion of this loss, $48,000, is 

associated with the proposed meals and lodging exclusion and occurs in the finance industry. 

This is attributable to the value of free or reduced housing provided to apartment building 

superintendents. The revenue loss attributable to the dependent care payment and cafeteria plan 

recommendations account for the remaining $8,000 of the estimated annual revenue loss.

TABLE 4.7 Revenue Loss by Industry - Montana

Industry Groups Revenue Loss

Construction $ 988 

Retail $ 731 

Finance $ 50,574 

Services $ 3,009 

Total Revenue Loss $ 55,302 

Total Revenue Collected $ 61,500,000 

Percentage Reduction 0.1%

Table 4.7A shows the impact of the exclusion of components by sector and by salary level
50

TABLE 4.7A Impact of THWC Components by Sector

Retail (Meals &Lodging)

Worker Salary Levels

$1 to $17,100 $17,100 to $19,100 over $19,1000 

No. of Wage Records in Universe 87,237 3,095 15,617

No. of Wage Records in Sample 1,134 50 297

Percent of Sample to Universe 1.3% 1.6% 1.9%

No. of Wage Records with Component 4 0 0

Percent of Affected Wage Records in Sample 0.4% 0.0% 0.0%

Average value of each occurrence in Sample $ 198 $ 1,530 $ 4,832

No. of Wage Records Affected in Universe 308 0 0

Reduction in taxable wages $ 60,923 $ - $ - 

Average tax rate 1.20% 1.20% -

Average tax rate x Reduction $ 731 $ - $ - 

Revenue loss $ 731 $ - 

Industry Total Loss $ 731

Finance (Meals &Lodging)

Worker Salary Levels

$1 to $17,100 $17,100 to $19,100 over $19,1000 

No. of Wage Records in Universe 9,886 1,238 9,058

No. of Wage Records in Sample 168 107 1,992

Percent of Sample to Universe 1.7% 1.8% 1.7%

No. of Wage Records with Component 17 5 40

Percent of Affected Wage Records in Sample 10.2% 4.7% 2.0%

Average value of each occurrence in Sample $ 4,797 $ 4,300 $ 5,636 

No. of Wage Records Affected in Universe 1,008 58 181

Reduction in taxable wages $ 4,837,160 $ 250,200 $ 1,021,018 

Average tax rate 1.00% 1.00% 1.00%

Average tax rate x Reduction $ 48,372 $ 2,502 $ 10,210 

Revenue loss $ 48,372 $ 2,300*

Industry Total Loss $ 50,574

*Partial loss from Wages falling under the Taxable Wage Base
51

Services (Dependent Care)

Worker Salary Levels

$1 to $17,100 $17,100 to $19,100 over $19,1000 

No. of Wage Records in Universe 119,223 7,100 56,224

No. of Wage Records in Sample 715 71 1,237

Percent of Sample to Universe 0.6% 1.0% 2.2%

No. of Wage Records with Component 1 0 0

Percent of Affected Wage Records in Sample 0.1% 0.0% 0.0%

Average value of each occurrence in Sample $ 486 $ - $ 1,394 

No. of Wage Records Affected in Universe 119 0 0

Reduction in taxable wages $ 57,942 $ - $ - 

Average tax rate 1.50% 1.50% 1.50%

Average tax rate x Reduction $ 869 $ - $ - 

Revenue loss $ 869 $ - 

Industry Total Loss $ 869

Construction (Cafeteria Plan)

Worker Salary Levels

$1 to $17,100 $17,100 to $19,100 over $19,1000 

No. of Wage Records in Universe 18,901 1,365 12,338

No. of Wage Records in Sample 567 18 370

Percent of Sample to Universe 3.0% 1.3% 3.0%

No. of Wage Records with Component 1 0 1

Percent of Affected Wage Records in Sample 0.1% 0.0% 0.4%

Average value of each occurrence in Sample $ 1,493 $ - $ 789 

No. of Wage Records Affected in Universe 19 0 49

Reduction in taxable wages $ 28,219 $ - $ 38,939 

Average tax rate 3.50% 3.50% 3.50%

Average tax rate x Reduction $ 988 $ - $ 1,363 

Revenue loss $ 988 $ - 

Industry Total Loss $ 988
52

Services (Cafeteria Plan)

Worker Salary Levels

$1 to $17,100 $17,100 to $19,100 over $19,1000 

No. of Wage Records in Universe 119,223 7,100 56,224

No. of Wage Records in Sample 715 71 1,237

Percent of Sample to Universe 0.6% 1.0% 2.2%

No. of Wage Records with Component 1 0 11

Percent of Affected Wage Records in Sample 0.1% 0.0% 0.1%

Average value of each occurrence in Sample $ 856 $ - $ 965 

No. of Wage Records Affected in Universe 167 0 56

Reduction in taxable wages $ 142,667 $ - $ 54,256 

Average tax rate 1.50% 1.50% -

Average tax rate x Reduction $ 2,140 $ - -

Revenue loss $ 2,140 $ - 

Industry Total Loss $ 2,140

Impact on SUI benefits

The following tables 4.8A, B and C describe the impact of the recommendations on annual SUI 

benefits using 1999 calendar year data. As shown in Table 4.8A, the overall reduction in 

benefits resulting from these recommendations is estimated to be $27,000, or 0.15% of the 

annual benefits paid. The distribution of this reduction between large and small employers is 

54% and 46% respectively and is about equally distributed among the construction, finance and 

services industries. The distribution of claimants affected by these reductions is about equal 

among large and small employers with the greatest share falling to claimants in the construction 

industry. Approximately 0.4% of claimants lose eligibility for UI. These components are treated 

as wages under the Montana SUI law. 
53

TABLE 4.8 A. Total Benefit Reduction

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Paid

Total Benefit 

Reduction

Benefit 

Reduction 

to Total 

Benefit Paid

Agriculture 495 0 0% $0 13.69 $1,015,544 $0 0%

Mining 559 0 0% $0 12.45 $15,478,032 $0 0%

Construction 6,405 45 1% $16 15.99 $943,344 $11,161 1.18%

Manufacturing 3,276 0 0% $0 14.51 $1,266,853 $0 0%

Transportation 1,031 0 0% $0 9.76 $5,600,162 $0 0%

Wholesale 759 0 0% $0 13.03 $1,551,553 $0 0%

Retail 3,250 6 0% $15 14.23 $323,217 $1,252 0.39%

Finance 383 8 2% $86 14.29 $5,585,795 $9,860 0.18%

Services 5,707 48 1% $11 14.38 $11,658,670 $7,851 0.07%

Public A. 558 0 0% $0 12.45 $1,848,642 $0 0.0%

Total 22,423 107 0% $19 13.4 $45,271,812 $27,095 0.15%

Lost all Benefits 8 0.04%
54

TABLE 4.8 B. Benefit Reduction for Large Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 173 0 0% $0 13.69 $0

Mining 339 0 0% $0 12.45 $0

Construction 3,293 24 1% $17 15.99 $6,364

Manufacturing 2,133 0 0% $0 14.51 $0

Transportation 611 0 0% $0 9.76 $0

Wholesale 428 0 0% $0 13.03 $0

Retail 1,749 3 0% $17 14.23 $726

Finance 181 6 3% $90 14.29 $7,674

Services 3,957 25 1% $4 14.38 $1,553

Public A. 538 0 0% $0 12.45 $0

Total 13,402 58 0% $19 13.4 $14,660

Lost all Benefits 6 0.04%
55

TABLE 4.8 C. Benefit Reduction for Small Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 322 0 0% $0 13.69 $0

Mining 220 0 0% $0 12.45 $0

Construction 3,112 21 1% $14 15.99 $4,797

Manufacturing 1,143 0 0% $0 14.51 $0

Transportation 420 0 0% $0 9.76 $0

Wholesale 331 0 0% $0 13.03 $0

Retail 1,501 3 0.2% $12 14.23 $527

Finance 202 2 1% $77 14.29 $2,186

Services 1,750 23 1% $19 14.38 $6,298

Public A. 20 0 0% $0 12.45 $0

Total 9,021 49 0% $19 13.4 $12,435

Lost all Benefits 2 0.02%

4.3.5 Pennsylvania

The THWC recommendations are to exclude the following from the definition of wages:

• Meals and lodging that are provided for the convenience of the employer.

• Dependent care assistance program payment described in IRC 129.

Each of these components is treated as wages under the Pennsylvania SUI law.

Impact on SUI revenues

As shown in Table 4.9 Revenue Loss by Industry, the total revenue collected from contributory 

employers in 1999 was $1.4 billion. The estimated loss of revenue due to the THWC is 
56

$423,000 or 0.03% of the amount collected. The following tables display the impact of these 

recommendations on annual SUI revenues using calendar year 1999 data.

TABLE 4.9 Revenue Loss by Industry - Pennsylvania

Industry Groups Revenue Loss

Retail $ 420,573 

Services $ 2,153 

Total Revenue Loss $ 422,576 

Total Revenue Collected $ 1,469,796,883 

Percentage Reduction 0.03%

The data suggests that dependent care program participation occurs principally among workers 

earning over $10,000 per year and the THWC has no impact. As the state’s taxable wage base is 

$8,000, these occurrences have no impact on annual revenues. 

Conversely, the major portion of the meals and lodging component occurs among workers 

earning $8,000 or less per year. Services performed in the retail industry account for almost the 

entire revenue loss of more than $421,000, or less than 0.1% of the annual revenue collected. 

The remaining industries do not show any measurable reductions in revenues.

Table 4.9A shows the impact of the exclusion of THWC components by sector by salary level.
57

TABLE 4.9A Impact of THWC Components by Sector

Services (Dependent Care)

Worker Salary Levels

$1 to $8,000 $8,000 to $10,000 over $10,000 

No. of Wage Records in Universe 1,761,962 168,600 1,349,360

No. of Wage Records in Sample 4,104 953 31,831

Percent of Sample to Universe 0.2% 0.6% 2.4%

No. of Wage Records with Component 0 1 7

Percent of Affected Wage Records in Sample 0.0% 0.1% 0.02%

Average value of each occurrence in Sample $ - $ 716 $ 1,876 

No. of Wage Records Affected in Universe 0 177 297

Reduction in taxable wages $ - $ 126,671 $ 556,684 

Average tax rate 3.40% 3.40% -

Average tax rate x Reduction $ - $ 4,307 -

Revenue loss $ - $ 2,153* 

Industry Total Loss $ 2,153

*Partial loss from Wages falling under the Taxable Wage Base

Retail (Meals &Lodging)

Worker Salary Levels

$1 to $8,000 $8,000 to $10,000 over $10,000 

No. of Wage Records in Universe 1,275,918 81,576 285,372

No. of Wage Records in Sample 6,936 1,238 8,614

Percent of Sample to Universe 0.5% 1.5% 3.0%

No. of Wage Records with Component 547 92 351

Percent of Affected Wage Records in Sample 7.89% 7.43% 4.07%

Average value of each occurrence in Sample $ 139 $ 314 $ 430 

No. of Wage Records Affected in Universe 100,624 6,062 11,628

Reduction in taxable wages $13,986,718 $ 1,903,528 $ 5,000,139 

Average tax rate 3% 3% -

Average tax rate x Reduction $ 419,601 $ 57,105 -

Revenue loss $ 419,601 $ 971* 

Industry Total Loss $ 420,573

*Partial loss from Wages falling under the Taxable Wage Base
58

Impact on SUI Benefit

The impact of the recommendations on SUI benefits is shown in Table 4.10A. The overall 

reduction is estimated to be $1.1 million, or 0.08% of the annual benefit outlay for the year. Its 

distribution between large and small employers and industries is shown in Tables 4.10B and C. 

About 90% of the reduction is among claimants in the finance industry. This is attributed to the 

value of free or reduced housing provided to apartment building superintendents. Although the 

finance industry accounted for only 5% of total benefits paid, it accounts for 81% of the benefit 

reduction. Approximately 1% of claimants from small employers would lose eligibility for UI.

TABLE 4.10.A Total Benefit Reduction 

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Paid

Total Benefit 

Reduction

Benefit 

Reduction 

to Total 

Benefit Paid

Agriculture 11,665 0 0% $0 9.3 $23,245,392 $0 0.00%

Mining 5,978 0 0% $0 8.9 $16,703,532 $0 0.00%

Construction 94,909 0 0% $0 8.7 $255,284,823 $0 0.00%

Manufacturing 162,104 0 0% $0 8.7 $383,393,602 $0 0.00%

Transportation 36,931 0 0% $0 9.2 $83,054,200 $0 0.00%

Wholesale 22,975 0 0% $0 11.7 $142,124,492 $0 0.00%

Retail 71,009 2,635 4% $6 10.8 $142,124,492 $161,914 0.11%

Finance 20,721 2,850 14% $25 13.3 $77,502,627 $948,170 1.22%

Services 109,464 281 0% $7 11 $275,640,504 $22,517 0.01%

Public A. 0 0 0% $0 0 $0 $0 0.00%

Total 535,756 5,766 1% $15 13.4 $1,399,073,664 $1,132,601 0.08%

Lost all Benefits 19 0.004%
59

TABLE 4.10.B Benefit Reduction for Large Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 699 0 0% $0 9.3 $0

Mining 1,010 0 0% $0 8.9 $0

Construction 5,615 0 0% $0 8.7 $0

Manufacturing 38,926 0 0% $0 8.7 $0

Transportation 9,942 0 0% $0 9.2 $0

Wholesale 2,551 0 0% $0 11.7 $0

Retail 21,237 1,953 4% $6 10.8 $122,310

Finance 8,369 2,160 17% $26 13.3 $738,243

Services 7,357 178 0% $7 11 $14,080

Public A. 0 0 0% $0 0 $0

Total 95,706 4,291 1% $16 13.4 $874,633

Lost all Benefits 4 0.001%
60

TABLE 4.10.C. Benefit Reduction for Small Employers

Industry Group Claims

Affected 

Claims

Claims 

Affected %

WBA 

Reduction

Average 

Duration

Total Benefit 

Reduction

Agriculture 10,966 0 0% $0 9.3 $0

Mining 4,968 0 0% $0 8.9 $0

Construction 89,294 0 0% $0 8.7 $0

Manufacturing 123,178 0 0% $0 8.7 $0

Transportation 26,989 0 0% $0 9.2 $0

Wholesale 20,424 0 0% $0 11.7 $0

Retail 49,772 682 1% $5 10.8 $39,604

Finance 12,352 690 6% $23 13.3 $209,927

Services 102,107 103 0% $7 11 $8,437

Public A. 0 0 0% $0 0 $0

Total 440,050 1,475 0% $14 13.4 $257,968

Lost all Benefits 15 1.02%

4.4 Conclusions

One of the selection criteria used by the STAWRS Group in advancing the THWC initiative 

was that the wage components for harmonization have minimal economic impact. “Given 

the relative lower wage bases most states impose on employers and the fact that most 

jurisdictions will only have to make few modifications, the economic impact on state 

revenues should be minimal. There should also be minimal impact on potential benefits 

accruing to workers.”14

 

14 STAWRS – The Targeted Harmonized Wage Code, August 2000, p2-2
61

Our computations show (Table 4.11) that in the above five states, the relevant THWC 

components have met this criterion, when assessing the impact on state unemployment 

insurance revenues. The criterion was also met in terms of the number of claimants 

impacted, about 1% of the entire claimant population. However, in terms of this 1% of the 

claimants, their benefits would sustain reductions ranging from 8% to 20%.

TABLE 4.11 Summary of Revenue and Benefit Reductions

Estimated Reductions by State

Revenue Loss Total 

Revenue 

California Georgia Minnesota Montana Pennsylvania

Meals And Lodging $5,787,714 $5,132,513 $1,787 $181,526 $51,315 $420,573

Dependent Care $4,529 $1,507 $869 $2,153

Cafeteria Plans $10,229 $7,101 $3,128

Total $5,802,472 $5,132,513 $1,787 $190,134 $55,312 $422,726

Benefit 

Reduction

Total 

Claims

Benefit Paid Average 

Per Claim

Affected 

Claims

Benefit 

Reduction

Average 

Per claim 

Percentage of 

Reduction on 

claim

# of ineligible 

claimants 

California 836,939 $2,036,866 $2,434 7,623 $3,709,335 $487 20% 660

Georgia 127,362 $290,190 $2,278 1,494 $425,103 $285 12% 39

Minnesota 130,367 $343,459 $2,635 564 $153,192 $272 10% 48

Montana 22,423 $45,271 $2,019 107 $27,095 $253 13% 8

Pennsylvania 535,756 $1,399,073 $2,611 5,766 $1,132,601 $196 8% 19

Totals 1,652,847 $4,114,861 $2,395 15,554 $5,447,326 $298 12% 774
62

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

• The relative impact on revenues increase as the taxable wage base increases because a greater 

portion of the wage components affected fall within the greater taxable wage base.

• Unlike revenues the impact on claimant benefits are not directly linked to the taxable wage 

base. Rather, they are more closely related to workers’ occupations, industries in which they 

are employed, and their level of earnings. The number of claimants as a percentage of the 

entire claimant population was quite small, less than 1% in the sample states. The impact on 

claimants affected, however is more substantial. The reductions in their weekly benefit rate 

ranges on average from 7% to 30%. 

• It is important to remember that the impacts on benefits were measured at a time when 

benefit outlays were near, or at, a 10-year long low. Should there be an increase in 

unemployment rates, the impacts would increase as well. During periods of economic 

recession, an increase in the unemployment rate does not apply equally among all industries 

or categories of workers. In past recessions, those industries associated with hospitality 

services – hotels, restaurants, resort areas – generally sustained an earlier, greater and more 

prolonged impact than other industries. Since the meals and lodging component exists in 

hospitality services to a far greater degree than in other industries, the THWC’s impact on the 

percentage of affected claimants, benefit duration and weekly benefit reductions would be 

considerably greater. 

• Employers who participated in the focus group meetings made the following observations:

- They spent an estimated 5 to 10 hours per month on payroll activities and do not consider 

it an unduly burdensome activity.
63

- Despite a variety of printed instructions, most were unaware that meals were generally 

reportable to the state UI agencies.

- They are generally distrustful of any claim that the government is planning to make their 

reporting simpler.

- They would be willing to pay some additional taxes if the process could be made less 

complex.

- They viewed simplification as a worthwhile goal, but considered harmonization of 

substantially lesser importance than such issues as differing reporting and payment dates, 

clarification in the criteria for designating employee or independent contractor status, 

filing of all data on a single form and submitting it to a single entity, and late filing and/or 

underpayment penalties considered unduly harsh.

• State personnel and small employers agreed with the primary goal of the HWC to reduce 

the employer burden and promote government efficiency. However, both groups 

believed that the THWC recommendations appear to be addressed to benefit large multistate employers and accounting and payroll providers and would have little or no value to 

the filing and payment needs of the majority of small employers who conduct business in 

only one state.

• The majority of small employers stated that any plan for simplification, even though it 

would benefit them positively, should not have any negative impact on their workers, 

especially in reducing worker benefits when unemployed. 

• They questioned the stated lessening of burden to them when in fact the laws and 

requirements of income and corporate taxes would continue to contain differing 

treatments of similar components.
64

• State UI administrators stated that any harmonization related proposal that would result in 

the lowering of UI benefits, or excluding claimants eligible under current rules would be 

a difficult “sell” to their states’ legislators.

5.2 Recommendations

On the basis of the results of this study, we make the following recommendations.

1. The draft model state legislation that incorporates the THWC proposals should be advanced 

by the STAWRS Group to the individual states for their consideration. In addition to its 

stated purpose, it could serve as a point of departure for broader discussion on the entire issue 

of tax reporting and the need for simplification and greater utility of available electronic 

technologies. 

One of the criteria used by the STAWRS Group in advancing the THWC initiative was to 

select several wage components for harmonization that were most common to small 

employers. “Given the relative lower wage bases most states impose on employers and the 

fact that most jurisdictions will only have to make few modifications, the economic impact 

on state revenues should be minimal. There should also be minimal impact on potential 

benefits accruing to workers.”15 This study has shown that the components selected have 

met this criterion, particularly when assessing the impact on state unemployment insurance 

revenues. When assessing the impact on benefit outlays and numbers of claimants affected, 

again the impact was minimal, less than 1% of the annual benefits paid. The impacts on 

those claimants whose benefits are affected, however is more substantial. These reductions 

in WBAs range on average from 7% to 30%.

 

15 STAWRS – The Targeted Harmonized Wage Code, August 2000, p2-2
65

2. In our discussions with employer groups, they seemed generally unaware of many of the 

current differences in the reporting of some of the wage components and of the burden of 

tracking the different components of wages for federal and state ITW, FICA, FUTA and SUI. 

We recommend tha t greater educational efforts be undertaken which focus on proper 

reporting. Making these instructions clear and concise should overcome the complaint that 

governmental instructions often lend themselves to more than one interpretation and assume 

a greater understanding of the subject matter than the reader possesses.

3. Employers expressed dissatisfaction with the differences in reporting times and payment 

schedules. They would like to see greater uniformity, including some consolidation of the 

periodic payment processes. We recommend that efforts be undertaken to streamline these 

processes.

4. Employers also expressed dissatisfaction with the need to file separate quarterly payroll 

reports and payments and questioned why a single report would not be adequa te; particularly 

since the base data of the reports is similar. We recommend that greater experimentation be 

undertaken to promote consolidating not only multiple state reports, but state and federal 

reports as well, as has been undertaken in the State of Montana.

5. Employers were appreciative of the efforts to make greater use of electronic data 

transmission in the payroll reporting process. Many, however, were either unaware of some 

of these services or felt that they were too intimidating to use. One suggestion expressed 

most often was the possibility of filing required reports via the Internet. We recommend that 

these efforts continue and be expanded.
66

APPENDIX A 

PAYROLL SAMPLE
67

Table 1: Size of Payroll Sample - Employees

State

Employees in 

Sample

Employees in State

% of Employees 

captured by sample

Minnesota 41,000 2,600,000 1.5%

Montana 500 460,000 0.1%

Georgia 34,000 4,000,000 0.8%

California 230,000 16,000,000 1.4%

Pennsylvania 104,000 5,700,000 1.8%

Table 2: Size of Payroll Sample - Employers

State

Employers in 

Sample

Employers in State

% of Employers 

captured by sample

Minnesota 3,400 161,000 2.1%

Montana 70 40,000 0.1%

Georgia 3,500 223,000 1.6%

California 18,500 725,000 2.6%

Pennsylvania 8,500 282,000 3.1%
68

Table 3: State Conformance to the 14 THWC Components

State Components

1 2 3 4 5 6 7 8 9 10 11 12 13 13a 14

FU

FI P

Changes 

req. to 

conform to 

THWC

AL C P P C 2

AK P C P C C 3

AZ

AR P C C C 3

CA C 1

CO

CT C P C P C C C 5

DE P C P P P P C C 3

DC C P C C P C C 5

FL P C 1

GA C C 2

HI P P C C C 3

ID P C P 1

IL P C P 1

IN P

IA P P C C C 3

KS

KY C P C 2

LA P C C C 3

MD P

ME P

MA P C P 1

MI C C C 3

MN C P C P C P 3

MS P C P C C C 4

MO P C P P P P 1

MT C P C P C P C 4

NE P P C P C P P 2

NV C P C C P P C 4

NH C P C C C C C 6

NJ C P C P C P P C 4

NM P P P P C 1

NY C P C C C P 4

NC C C 2

ND C P C P 2

OH

OK P C C 2

OR P C C C 3

PA P C P C 2

RI P C C C 3

SC C P P C C 3

SD P P C C 2

TN C P C P 2

TX C P C C C C 5

UT P C 1

VT C P C C C C P 5
69

Table 3: State Conformance to the 14 THWC Components

State Components

1 2 3 4 5 6 7 8 9 10 11 12 13 13a 14

FU

FI P

Changes 

req. to 

conform to 

THWC

VA P C 1

WA P C P C 2

WV P C C P 2

WI

WY C P 1

C Change in Component P Partial Change in Component No Change in Component

Key to Components Numbering in Table 2 above:

1 Cafeteria Plans

2 Death Benefits

3 Dependent Care

4 Fringe Benefits

5 Group Term Life Insurance

6 Health Insurance 

7 Jury Duty Payments

8 Meals and Lodging

9 Moving Expenses

10 Tips

11 Employee Business Expense Reimbursement

12 Vacation

13 Sick Pay

13a Sick Pay after 6 months

14 Pension Plans

Source: HWC database
70

APPENDIX B

INFORMATION REQUESTED FROM STATES
71

Table 1 - Employers by Size and Major Industry Group

Number of Employers in each Number of Employees by SIC Major Group

Major Group: Small 

Employer

Large 

Employer

Total 

Employers

Agriculture, Forestry and Fishing 

(SIC 1-9)

Mining (SIC 10-14)

Construction (SIC 15-17)

Manufacturing (SIC 20-39)

Transport, Communications, 

Electric, Gas and Sanitary Services 

(SIC 40-49)

Wholesale Trade (50-51)

Retail Trade (52-59)

Finance, Insurance and Real Estate 

(SIC 60-67)

Services (SIC 70-89)

Public Administration (SIC 91-97)

Non-Classifiable Establishments 

(SIC 99)

Total Sum of Employers
72

Table 2 - Employees by Wage Level, Major Group and Size of Employer

Major Group: Agriculture, Forestry Size of Employer by Number of Employees

and Fishing (SIC 1-9) Large Employer Small Employer Total Employers

Number of Employees by wage level:

$1 to $8,000

8,001 - $10,001

over $10,001

Major Group: Mining Size of Employer by Number of Employees

(SIC 10-14) Large Employer Small Employer Total Employers

Number of Employees by wage level:

$1 to $8,000

8,001 - $10,001

Over $10,001

Major Group: Construction Size of Employer by Number of Employees

(SIC 15-17) Large Employer Small Employer Total Employers

Number of Employees by wage level:

$1 to $8,000

8,001 - $10,001

Over $10,001

Major Group: Manufacturing (SIC 20- Size of Employer by Number of Employees

39) Large Employer Small Employer Total Employers

Number of Employees by wage level:

$1 to $8,000

8,001 - $10,001

over $10,001

This information was requested for all SIC groups
73

APPENDIX C

FOCUS GROUP QUESTIONNAIRE & HANDOUTS
74

DISCUSSION GUIDE

INTRODUCTION (10 Minutes) 

1. Guidelines and Instructions

2. Purpose of group

Get your opinions about some efforts to reduce employer and government burden by 

simplifying employment tax requirements

3. Introductions 

Name 

Business (type, size)

Your role (title and responsibilities) 

CONTEXT: TAX AND WAGE REPORTING (25 Minutes) 

READ: First, I’d like to talk a little bit about your experience with tax and wage reporting in 

general . . .

1. How involved are you in tax and wage reporting?

You, personally, do all the reporting

You do the reporting with help from others in your office

You do the reporting with help from an accountant 

 2. Does anyone here use a payroll service (like ADP or PrimePay)? 

Would you prefer to use a payroll service? 

Why/Why Not?

3. About how many hours a month do you spend on tax and wage reporting? 

4. How many employees do you report for?

5. How many agencies do you report to? 

Which agencies are they?

6. Do you do your reporting on paper or on diskette?

7. In general, how do you feel about the current wage and tax system? 
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Simple or complicated? How so?

Fairly easy or burdensome? How so?

8. Do you think the system is in need of simplification?

9. Are there any specific simplifications you’d like to see? 

PROBE FOR SPECIFICS. 

IF NOT MENTIONED ASK ABOUT:

Simpler forms

Fewer Forms

Only reporting to one agency

Uniform definitions

Others

INTRODUCTION TO THWC (35 Minutes)

READ: As I mentioned at the beginning, this group is about some efforts to reduce employer 

and government burden by simplifying employment tax requirements. I want to share some of 

the specifics with you and get your reaction. 

1. Has anyone here ever heard of the “Simplified Tax and Wage Reporting System Group” also 

called STAWRS? 

IF YES: What have you heard about this? Where?

2. How about proposed “Targeted Harmonized Wage Code” also called THWC? 

IF YES: What have you heard about this? Where?

HANDOUT ONE

READ: I’d like to pass this around and read through it together. This is some background about 

the STAWRS and the THWC. Take a minute to read it through, then let’s read it through 

together, and then let’s talk about it . . .

1. I want to get into the details in a minute but first, what’s your overall 

reaction to this? Does it sound like a good idea?

Potential advantages?
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Potential problems?

2. Any questions about what this would involve? Concerns?

SPECIFICS ON THWC (40 Minutes)

HANDOUT TWO

READ: Now some specifics about the 14 components . . . I’d like you to pass this around and 

read through it together. 

1. Any questions about that definition?

2. Based on the information from this handout and handout one, does the THWC sound like 

a good idea? 

3. Do you think the THWC would make your business’ wage and tax reporting easier? 

Harder?

Potential advantages?

Potential problems?

4. To get an idea of how this might effect your reporting, let’s talk about the component the 

state of (California, Georgia, Maryland or Texas) specifically deals with (relevant 

component). 

5. Do you report meals and lodging as part of your employee’s wages?

6. Are they reported or computed differently – on different forms or for the different 

agencies you report to?

7. Are there any of the other 13 components you’d like to see adopted by the state of 

(California, Georgia, Maryland or Texas)? Any components you’d like to see added to 

the list of 14 components?

HANDOUT THREE 

READ: Now there are some potential downsides. Let’s review one of them . . . 
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1. Adoption of the THWC could have the effect of eliminating the eligibility of some lowwage earnings from unemployment benefits and reducing the benefits of some others? 

What do you think of that? 

2. Questions about what that means or how it would work (see examples)?

3. If indeed unemployment benefits were reduced . . . 

Should the reduction be remedied? Or isn’t that necessary?

4. If they should be remedied, how do you think this should be done?

Increased benefit rates to compensate?

A change in the way benefits are calculated?

A reduction in the amount of earnings necessary to qualify for benefits?

Other suggestions?

5. Given what we reviewed so far, what do you think of the THWC?

6. Does it sound like something that would be good for your business?

ADDITIONAL IDEAS FOR REDUCING REPORTING BURDEN (10 MINUTES)

1. Any other ideas for reducing tax and wage reporting?

2. What about the idea of filing electronically on the Internet?

Potential advantages?

Potential problems?

Do you foresee privacy issues with e filing?

CONCLUSION (5 MINUTES)

Any additional comments or questions.
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HANDOUT ONE:

BACKGROUND AND DEFINITIONS

STAWRS

The “Simplified Tax and Wage Reporting System Group” or “STAWRS” is a program of 

government agencies including the Labor Department and the IRS, and various private 

organizations and business. The goal of STAWRS is to bring together government agencies and 

employers to simplify the employment tax and wage reporting process.

HWC

The “Harmonized Wage Code Project” or “HWC” is one of several STAWRS initiatives. The 

HWC Project is an effort to reduce employer and government burden by developing simplified 

employment tax requirements to replace the multitude of complex laws employers face today. 

The HWC Project aims to reduce employment tax burdens by harmonizing federal and state 

employment tax laws.

THWC

The initial recommendation of the HWC is the “Targeted Harmonized Wage Code” or 

“THWC”, which is directed at small employers. 85% of all the employers in the US employ 20 

or fewer workers. These smaller employers generally deal with just a subset of the hundreds of 

components contained in employment tax laws. The TWHC would provide uniform definitions 

of 14 specific components. These uniform definitions could be used in reporting by employers 

who deal only with these components. Such employers would have the advantage of simpler and 

fewer forms, less complicated laws and regulations, and simpler procedures.
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HANDOUT TWO:

THE 14 COMPONENTS

The TWHC would provide uniform definitions of 14 components. These 14 were chosen 

because they are the ones which most small employers use. They are:

1. Vacation Pay

2. Payments for Jury Duty

3. Meals and Lodging

4. Group Term Life Insurance

5. Dependent Care

6. Tips

7. Employee Business Expense Reimbursement

8. Health Insurance

9. Cafeteria Plans

10. Moving Expenses

11. Death Benefits

12. Sick Pay

13. Fringe Benefits

14. Qualified Pension Plans

If the THWC is enacted, all these components would be given uniformed 

definitions – that is, the definitions would no longer differ by agency or level of 

government (i.e., state vs. federal). Also, these components would be reported on 

simplified forms. 
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HANDOUT THREE:

POTENTIAL DRAWBACK

Adoption of the THWC could have the effect of eliminating the eligibility of some low-wage 

earners from unemployment benefits and reducing the benefits of some others.

EXAMPLE 1: MEALS

Waiters and waitresses generally get paid very low wages. Many get meals from their employers 

as part of their compensation. If these meals are not included in computing compensation to 

determine unemployment insurance benefits, waiters and waitresses who become unemployed 

may get lower unemployment benefits. Some may not get unemployment benefits at all if this 

form of compensation is disallowed and their overall compensation then drops below the 

minimum requirement.

EXAMPLE 2: LODGING

Some building superintendents get paid low wages but get a place to live from their employers as 

part of their compensation. If this lodging compensation is not included in computing 

compensation for unemployment insurance benefits, such superintendents, if they become 

unemployed, would get lower unemployment benefits. Some may not get unemployment 

benefits at all if this form of compensation is disallowed and their overall compensation then 

drops below the minimum requirement.
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APPENDIX D

METHOD OF ESTIMATION OF IMPACT ON WBA

Method of Estimation of the Impact on Weekly Benefit Amounts

Estimating the impact on WBA consisted of a three-step process. The process was applied to 

each individual in the UI claimant file for each component under consideration. The steps are 

listed below, and then described.

Step 1: Determine whether the component was present in the wage for the individual.

Step 2: If the component was present, determine the percent of the individual’s wage made up of 

the component.

Step 3: If the component was present, calculate the reduced WBA based on the adjusted wage.

Since it was not possible to collect data on the make up of the wages of every individual in the 

UI claimant files, probabilities and statistical distributions were used. This involved deriving 

three parameters from the payroll data.

The three parameters were:

1. The probability a business offers the component

This parameter was calculated only for components for which businesses may choose to offer 

the component as a benefit to employees. This was the case for cafeteria plans and 

dependent care, for example. For each component for which the parameter was applicable, 
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the parameter was determined by dividing the total number of businesses represented in the 

data into the number of businesses having any employees with non-zero entries for the 

component.

From the payroll data, it was determined that large businesses (those with twenty employees 

or more) were statistically more likely than small businesses to offer cafeteria plans and 

dependent care. To account for this difference, the data was stratified by large and small 

businesses. 

The data were tested to determine the significance of the differences among the SIC codes. 

The test showed no statistically significant difference from one SIC code to another in the 

likelihood of offering the benefits.

The parameters for large and small businesses were calculated by:

(Number of businesses with any employees having made payments for the 

component)/(Total number of businesses in the payroll data)

2. The probability that a portion of an individual’s wage is made up of a component

The second parameter was calculated for all components. It was calculated by dividing the 

number of individuals with non-zero amounts for the component by the total number of 

individuals in the database.

The parameter was calculated differently for cafeteria plans and dependent care. For these, 

only individuals employed by businesses offering the bene fit were considered. 

3. The distribution of the percent of wages made up by the component

Investigation of the payroll data revealed a generally low correlation between an individual’s 

wage and the amount for a component. There was also a consistently low correlation 

between wage and percent of wage for the component. This indicated a random process 

would be necessary to represent the selection of percent of wages to be assigned to a 

component.
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A table of frequencies was developed. The table gave a percentage bands (e.g. 0% - 2%, 2% 

- 4%, etc.). Associated with each band was the number of times that band occurred in the 

data. The following table is an example of the distributions that were developed. 

CAFETERIA PLAN COST TO EMPLOYEES AS A 

PERCENT OF GROSS WAGES

From To Frequency Cumulative 

Frequency as a 

Percent

0% 2% 3964 25.8%

2% 4% 4389 54.3%

4% 6% 2572 71.0%

6% 8% 1536 81.0%

8% 10% 933 87.0%

10% 12% 621 91.1%

12% 14% 450 94.0%

14% 16% 265 95.7%

16% 18% 181 96.9%

18% 20% 131 97.7%

20% 100% 348 100.0%

The following describes the use of the three parameters in the three-step process.

Step 1: Determine whether the component was present in the wage for the individual.

A random number was computer generated and compared to the probability the component was 

present. If the random number was greater than the probability, the component was not present 

for that individual and no impact was calculated. If the random number was less than the 

probability, the component was considered to be present and step 2 was performed.
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For the cafeteria plan and dependent care components, there were two parts to step 1. First, the 

size of the business associated with the individual in the database was retrieved. A random 

number was then generated. If the individual was employed by a small business, the random 

number was compared to the probability that a small business offered the component. Otherwise, 

the random number was compared to the probability that a large business offered the component. 

If the random number was greater than the probability, the component was not present for that 

individual and no impact was calculated. If the random number was less than the probability, the 

component was considered to be present and the second comparison was performed.

The second comparison was performed by generating another random number and comparing it 

to the probability that an individual in a business offering a plan was enrolled in the plan. Again, 

greater meant no impact; less meant that step 2 was performed.

It was suggested that a business offering a cafeteria plan might also offer dependent care. Using 

the payroll data, it was demonstrated statistically that businesses offering cafeteria plans were 

more likely to offer dependent care than businesses not having cafeteria plans. Using the 

probability approach, this interaction was modeled.

Step 2: If the component was present, determine the percent of the individual’s wage made up of 

the component.

If the component was present, the frequency table for the component was retrieved. A random 

number was generated and its position in the relative frequency distribution was determined. For 

example, using the frequency table given above, a random number 0.315 would be in the 2% to 

4% row (0.315 is greater than 0.258 and less than 0.543). To determine the percent to be used in 

calculating the amount of the impact on wage, the exact position of 0.315 in the range of 0.258 to 

0.543 was calculated and applied to the range of 2% to 4%. 0.315 is exactly 1/5th of the way 

from 0.258 to 0.543, therefore the percent selected to use in calculating the impact would be 1/5th

the way from 2% to 4% or 2.4%.
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Step 3: If the component was present, calculate the reduced WBA based on the adjusted wage.

If the component was present, there were three cases to consider: the individual receiving the 

minimum WBA, the individual receiving the maximum WBA, and the individual receiving a 

WBA between the minimum and maximum. 

If the individual were receiving the minimum WBA, any reduction in wages would result in loss 

of benefits. In this case the WBA was reduced to $0.

An individual receiving the maximum WBA was assumed to be unaffected by the presence of 

the components. Since the exact wage resulting in maximum benefits could not be determined, 

the assumption was made that even in the low likelihood event that these components reduced 

the wages of one quarter, there would be a second quarter that would qualify the individual for 

maximum benefits.

For individuals with WBAs between the minimum and maximum, each percent reduction in 

wages would be mirrored by a percent reduction in WBA. Therefore the WBA was reduced by 

the percent determined in step 3 above.