Successor Employer

Title 21, Chapter 17, Section 1325(b)(1) says in part "Any individual or employing unit who in any manner succeeds to or acquires the organization, trade or business or substantially all of the assets of any employer who has been operating his or her business within two weeks prior to the acquisition, except any assets retained by the employer incident to the liquidation of his or her obligations, and who thereafter continues the acquired business shall be considered to be a successor to the predecessor from whom the business was acquired and, if not already an employer before the acquisition, shall become an employer on the date of the acquisition. The commissioner shall transfer the experience rating record of the predecessor employer to the successor employer. If the successor was not an employer before the date of acquisition, his or her rate of contribution for the remainder of the rate year shall be the rate applicable to the predecessor employers with respect to the period immediately preceding the date of acquisition if there was only one predecessor or there were only predecessors with identical rates. If the predecessors' rates were not identical, the commissioner shall determine a rate based on the combined experience of all the predecessor employers. If the successor was an employer before the date of acquisition, the contribution rate which was assigned to the successor for the rate year in which the acquisition occurred will remain assigned to the successor for the remainder of the rate year, after which the experience-rating record of the predecessor shall be combined with the experience rating of the successor to form the single employer experience-rating record of the successor."

Transferring the experience record means that the tax rate of the company which was purchased under these conditions becomes the tax rate of the new owner. It also means that both the benefit charges and taxable wages used to compute a rate are transferred to the new employer. There can be benefit charges based on claims filed against the original owner, either before the acquisition or as a result of the change in ownership that are not yet reflected in the rate. The statute also requires the department to combine the rates when there was more than one predecessor account being acquired, and in the case where the employer was already an employer subject to the unemployment statute prior to the acquisition, the employer will keep its rate for the remainder of the rate year, after which the experience of all existing and acquired accounts will be merged to determine a new experience rate as of the beginning of the next rate year, which is July 1st of each calendar year.

Title 21, Chapter 17, Section 1325(b)(2) continues to say "notwithstanding the provisions of subdivision (1) of this subsection, an individual or employing unit who in any manner succeeds to or acquires the organization, trade, or business or substantially all of the assets of any employing unit who was an employer before the date of acquisition and whose currently assigned contribution rate is higher than that currently assigned to the acquiring individual or employing unit shall not be treated as a successor." That means that an already existing employer that has a lower experience rate than the business it acquires gets to keep the lower rate. The purpose of this section of the law is to not penalize an employer with a good experience record simply because of the acquisition of a business that had a poor experience record.

Partial Successor

"An entity that is not already an employer for unemployment purposes which acquires only a portion of an existing business which was liable to pay unemployment insurance tax in this state and then continues to operate that portion of the business is considered to be a partial successor'". A partial successor is not eligible for a rate transfer. In the case of a partial successor, the new employer rate is assigned.