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Transfer of Business (Successorship)
What the law says: Section 41(2) of the Michigan Employment Security Act covers how an employer (whether private or non-profit) becomes a “liable” employer, responsible for making unemployment tax payments; Section 22 covers the transfer of rating account factors from a former (predecessor) employer to a new (successor) owner; Section 15(g) covers the related issue of the transfer of the former business owner’s UIA liability for taxes and interest owed to the new owner of the business. A transfer of business can occur by various means such as sale, foreclosure, lease, bankruptcy, or merger.
The law says that there will be a mandatory “transfer of business” for UIA purposes if:
- the new owner was already an “employer” liable for the payment of unemployment taxes, becomes an “employer” on the date of the transfer, or elects to become liable; and
- there was a transfer of 75% or more of the assets of the former business to the new owner, and either
- the new owner has used the trade name or good will of the former business, or has continued all or part of the business of the former owner, or within 12 months of the transfer resumes all or part of the business of the former owner.
However, regardless of whether any of the above conditions is met, a “transfer” of business occurs if the new business is owned by substantially the same owner as the former business.
The law says that if less than 75% of the assets of the former business are transferred, then there can still be a transfer of business if the following two conditions are met:
- UIA must be notified of the transfer of assets within 30 days after the end of the calendar quarter in which the transfer occurred, and
- UIA must receive a written agreement from both the former and new business owners requesting the transfer of the UIA account. A buyer of a business might benefit from a voluntary transfer if it results in a lower tax rate.
When there is a 100% transfer of business assets, all of the former employer’s experience account transfers to the new employer. This means that all of the former employer’s unemployment tax payments and all benefit charges attributable to the former employer transfer as part of the UIA “experience account” to the new owner.
When the UIA determines there is a partial “transfer of business,” the amount of the former employer’s account that will transfer to the new employer depends on the percentage of the former employer’s payroll (paid for the four completed quarters before the transfer) attributable to the assets that were transferred to the new owner. If the payroll associated with these transferred assets is less than 100%, then the transfer of experience is a “partial transfer.”
Examples: A portion of a business was transferred to a new owner and the UIA account of the previous owner was also transferred. The previous owner had operated an office supply division and a secretarial services division. Only the assets of the office supply division were transferred to the new owner. Eighty percent of the payroll the previous owner had paid had been paid to employees of the office supply division. In this example, 80% of the benefit charges would carry over from the UIA account of the former owner, as would 80% of the tax payments from the former employer, and 80% of the wages.
Proof at the Hearing: The UIA has the initial burden of proving that a transfer of business occurred; the new owner has the opportunity to produce business records that could prove the Agency was wrong.
For Further Help: The Unemployment Insurance Agency (UIA) Advocacy Program can provide assistance to employers in preparing for Administrative Law Judge and Board of Review hearings on this issue. Call 1-800-638-3994.
The information on this sheet is intended to provide a general understanding of the subject matter. It does not have the force of law or regulation.