Michigan Employer Advisor: June 2024

What You Need to Know About Professional Employer Organizations

A Professional Employer Organization (PEO) can file quarterly unemployment tax reports for their clients, but there are some important aspects of the relationship with employers to keep in mind.

A PEO, also known as a leasing company, must be assigned to the employer’s MiWAM account before they can file reports with the Michigan Unemployment Insurance Agency (UIA). This is called Client Level Reporting. The PEO’s client is required by law to have its own unemployment Employer Account Number (EAN) for the PEO to comply with Client Level Reporting rules.

This relationship prevents anyone from circumventing employer tax rate assignments.

When a PEO requests a 940 certification for their clients, they must provide UIA Form 6324 Certification by PEO Regarding Payment of Wages to Leased Employees to establish the PEO relationship before the 940-c can be issued.

PEOs are considers a go-employer and are granted a general Power of Attorney (POA) authorization, which will give the PEO the same rights as the employer so the PEO can obtain the 940-c certification.

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When Do LLCs and LLPs Have to Pay Unemployment Taxes? It Depends

At Issue: Registered businesses in Michigan have an obligation to pay taxes that support the state’s unemployment insurance program. But what is often less clear for employers is whether wages earned by members of an LLC, partners of LLPs, individuals in sole proprietorships or partnerships, must pay unemployment taxes. There is no one-size-fits-all answer.

An annual review of newly registered employers with the Michigan Unemployment Insurance Agency (UIA) continues to reflect some sole proprietorship, members of Limited Liability Corps. (LLCs), and partners in Limited Liability Partnerships (LLPs) reporting their wages for state unemployment taxes.

Any employing unit without employees is not subject to state unemployment taxes and is not required to file a Wage/Tax Report if the individual is solely performing services for the employing unit. 

Registered businesses in Michigan have an obligation to pay taxes that support the state’s unemployment insurance program. But what is often less clear for employers is whether wages earned by members of an LLC, partners of LLPs, individuals in sole proprietorships or partnerships, must pay unemployment taxes.

There is no one-size-fits-all answer. Here are two scenarios that most employers have inquired about:

I am a member of an LLC or LLC-Corporation. Are my wages taxable for unemployment?

Your wages are taxable if your LLC is owned by a corporation. For example: ABC, LLC is owned by ABC, Inc. That means the officers or directors who perform services for the LLC or the corporation are employees and wages are taxable.

I am a member of an LLC and S-Corp or C-Corp for federal purposes, partners of an LLP, individuals in sole proprietorships or partnerships. Are my wages taxable?

No. If you are registered with the State of Michigan as an LLC-Corporation, LLC-Partner, LLC-Individual, or LLP the wages paid to members are not taxable for unemployment taxes. This is because members who perform services for the LLC and LLP are not considered employees.

Individual owners performing services for sole proprietorships and partnerships are treated the same way and their earnings are excluded from unemployment taxes.

UIA can identify individuals who continue to report wages excluded from unemployment taxes. If it’s determined the individual is the sole employee but reported wages for a newly established account, the Employer Account Number (EAN) is inactivated, and the account status is changed to non-liable employer.

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There are 2 Ways an Employer can Adjust Quarterly Tax Reports

There are two ways an employer can adjust their Quarterly Tax Report: An account debit or credit. Each has specific rules and timeframes.

To make an adjustment to payroll the Michigan Unemployment Insurance Agency (UIA) must either receive a UIA Form 1107 or the changes must be made in the Michigan Web Account Manager (MiWAM).

• A debit adjustment is only accepted for the current and six previous years from the received date of the quarterly report or the due date of the quarter, whichever is later. A debit adjustment from an audit is only processed for the current and three previous years.
• A credit adjustment is only accepted for the current and three previous years from the date of first payment on the quarter. If no payment has been made on the quarter, the statute of limitations for a credit adjustment is the same as for a debit adjustment (six years).

The automated Form 1107 process is activated when there is a mathematical error in the quarterly wages reported. When the automated system detects the error, the gross and taxable wages for the quarter containing the mathematical error are adjusted to the highest wage amount reported for the quarter. Excess wages are adjusted to zero. Form 1107 is then mailed to the employer as notification of the payroll adjustment. 

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Work Share Employers Asked to Confirm Program Employees' Status

Employers who had workers paid under the federal Work Share Program are asked to confirm how those employees were classified.

The request is in response to a recent audit by the U.S. Department of Labor’s Office of Inspector General and Employment and Training Administration. The Michigan Unemployment Insurance Agency (UIA) must ensure that benefits paid under the Work Share Program were charged to the correct funding source.

If you had employees participating in the program from April 2020 through September 2021, you have received from the UIA a Self-Attestation Web Request. You can find the notice under Tax Account Alerts in Michigan Web Account Manager (MiWAM).

Three things you need to report

1. List the number of employees that were classified as intermittent, temporary, or seasonal workers.
2. Check the appropriate box identifying the employee as intermittent, temporary, or seasonal. If classified as neither, do not check any box.
3. Verify the information before submitting the form since it cannot be modified once you have sent it in.

 

Three things to keep in mind

1. Your response is purely informational. The results of this review will not affect you or your employees, no overpayments will be established, and no reimbursements will be required from you or your workers.
2. Please respond to the web request in MiWAM as soon as possible. If you have already responded, you do not need to respond again.
3. If you have questions, please contact the Office of Employer Ombudsman at: 1-855-484-2636, then select Option 4.

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First Changes for Employers Unveiled in New UIA Computer System Design

MiUI is coming in 2025 and will significantly modernize the Michigan Unemployment Insurance Agency (UIA) as well as further our mission to be a national model for fast, fair, and fraud-free service.

We are starting to share changes in the new computer system with employers, Third Party Administrators (TPAs), and external partners. Here are two that will affect you:

File formats

There will be four file formats employers can use to submit their quarterly reports: XML, ICESA, EFW2, and Delimited.

Key benefit: This gives employers more options than they have currently, enabling greater flexibility in the submission process.

Key takeaway: Employers may need to update existing processes to reflect acceptable file formats.

 

Employer registration

For those employers who are required to submit documentation at registration, they will now have two to four weeks to submit documentation within MiUI.

Key benefit: Enables registration to be completed in a standard timeline.

Key takeaway: This will provide quality control and keep registration data up to date.