Important decisions for Corporate Officers of Closely-Held Corporations coming up in 2015…

 

On June 6, 2014, the SC Legislature added Section 41-27-265 to the SC Code of Laws.  Beginning January 1, 2015, Section 41-27-265 exempts corporate officers from unemployment benefits unless the employer elects coverage pursuant to specified procedures.  Specifically, the section states that services performed by a person appointed or otherwise serving as an officer for a corporation pursuant to Article 4, Chapter 8, Title 33 shall not be considered services in employment.  However, the section does permit a corporation to elect coverage for all its corporate officers.  The election must be approved by the SC Department of Employment and Workforce. 

The SC Department of Employment and Workforce has begun notifying employers of this important change.  In addition, the SC Department of Employment and Workforce has created a link for Frequently Asked Questions related to Corporate Officers.  The link is http://dew.sc.gov/corpofficers.

What does this mean to Closely-Held Corporations?  It means that the Corporate Officers would now be exempt from having to pay State Unemployment Insurance unless the employer elects to cover them.  This also means that Corporate Officers that are no longer covered by State Unemployment Insurance would be ineligible for unemployment benefits. 

This may sound like a pretty simple decision, but there are other factors to consider.  Corporate Officers not covered by State Unemployment Insurance will lose their Federal Unemployment Tax Act (FUTA) Tax Credit.  That credit is currently 5.4% of the first $7,000 of taxable wages, or $378.  So, South Carolina’s taxable wage base (which is scheduled to increase to $14,000 on January 1, 2015), the federal wage base for FUTA, the corporation’s federal and state unemployment rate, and the amount that is paid to the Corporate Officers are all factors that need to be considered when making the calculation on whether to elect in or out of State Unemployment Insurance for Corporate Officers. 

As always, the staff of Burch, Oxner, Seale stands ready to assist you in making the calculations, and we will be glad to help you navigate the decision making process.