BILL ANALYSIS

S.B. 638

By: Jackson

Economic & Small Business Development

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Favorable economic conditions and low unemployment can lead to a surplus in the state's unemployment insurance trust fund. Currently, the surplus credit is awarded to the entity that paid the wages upon which the credit was based, and thus a successor company is not awarded the surplus credit. The surplus credit that would have been awarded remains in the trust fund.

S.B. 638 addresses this issue by allowing a successor company that acquires another company to obtain the surplus credits to which the predecessor company was entitled. The bill seeks to balance the predecessor's liability for unemployment insurance tax that the successor company takes on when acquiring a new company with the benefits that the predecessor company had in surplus credits toward unemployment insurance.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Texas Workforce Commission in SECTION 1 of this bill.

ANALYSIS

S.B. 638 amends the Labor Code to entitle a successor employing unit to a surplus credit attributable to, but not applied or received by, the predecessor employing unit if the predecessor employing unit's compensation experience is transferred to the successor employing unit under provisions of law relating to the acquisition of all or part of an experience-rated organization, trade, or business. The bill entitles a successor employing unit to a surplus credit attributable to, but not applied or received by, the predecessor employing unit.

S.B. 638 establishes that a successor employing unit is not entitled to, and is prohibited from applying for or receiving, a surplus credit if the TWC determines that a transfer of compensation experience was accomplished solely or primarily for the purpose of obtaining a lower contribution rate. The bill establishes that a predecessor employing unit is not entitled to, and is prohibited from applying for or receiving, all or any portion of a surplus credit that is based on compensation experience that is transferred to a successor employing unit under provisions of law relating to the acquisition of an experience-rated employer.

S.B. 638 requires the TWC to adopt rules necessary to implement and enforce the bill's provisions, including rules that ensure that only a successor employing unit applies for or receives all or part of a surplus credit previously attributable to a predecessor employing unit. The bill defines "surplus credit."

EFFECTIVE DATE

September 1, 2011.