Will you be a "Successor" Employer? Inheriting Employees and Unemployment Insurance Accounts

If there are or were employees, you may soon encounter, "successorship." As a successor employer, you "inherit" the account of the former owners. If benefits have been paid over the last five years, or if the account has a "negative balance," chances are the you will have a rate in excess of 2.7 percent-in fact, as much as 10 percent. Since the annual rate is based on the benefits charged over the last five years, and the balance in the account, it is possible that the rates will be high for five years.

To avoid this, request from the seller a "disclosure of account" and then contact the Unemployment Insurance Agency at (800) 638-3994 and ask for the amount of the benefits charged over the past five years and the reserve balance. The request should be in writing and should be accompanied by some form of commitment to purchase the business. If the report is bad, should you look for another business? Not necessarily. The higher costs should be included in the cash flow and profit projections. If the business still looks like a winner, buy it! But, you may want to offer less since the you will be assuming a long-term liability.

One more note-any benefits currently being paid, or those resulting from the sale, will be charged to the your account. Find out from the seller if any employees are, or will be, collecting benefits. If possible, hire these employees! You will get employees who already know the job and will save money.

For further assistance, call the Unemployment Insurance Agency at (800) 638-3994 or a local Small Business Development Center. Both of these agencies have information and advice that can be very valuable in buying a business.