Government-mandated Benefits

There are a series of mandatory employment benefits managed by government and applicable to nearly all employees, public and private. Entitlement programs like Social Security and Medicare are paid for by taxing employer payroll. Employers must set aside 6.2 percent of payroll to the federal government for Social Security and 1.45 percent for Medicare.[*]

Not all state and local governments in Michigan are covered by Social Security. Under section 218 of the Social Security Act, states can sign an agreement with the federal government to cover its state and local government employees and opt out of some of the requirements of this federal law.[61] Unfortunately, it is difficult to determine how many government employees in Michigan do not participate in Social Security. Michigan’s administrator of its section 218 agreement explains:

If a political entity does not offer a retirement plan that is at least equivalent to that of a [S]ocial [S]ecurity benefit, they may fall under mandatory [S]ocial [S]ecurity coverage and do not need a 218 agreement.

At this point we have 991 modifications to Michigan’s 218 agreement; however some modifications cover hundreds of entities. It would take a substantial amount of time and research to estimate how many employees, and even then it may not be accurate…[62]

All employees receive unemployment insurance benefits, which provide temporary payments in the event of involuntary employment severance. However, there is a difference between how these benefits are paid for between state and local government entities, private nonprofits and for-profit private sector employers. For-profit private sector employers are required to make regular payments to a unemployment insurance fund while government entities and private nonprofits may be “reimbursing employers,” only paying for unemployment insurance benefits as they are claimed.[63]

Unemployment insurance is provided by both the state and federal government. The federal government charges employers 6 percent of wages per employee up to $7,000.[†] Michigan’s rates ranged from 0.06 percent of payroll to 10.3 percent of payroll in 2010, depending on the employer’s experience and their use of the system.[64]

Michigan state law requires all employers to provide workers’ compensation insurance to all employees.[65] These benefits provide medical and short-term disability benefits to employees that are injured while at work. Unlike unemployment insurance, these benefits are administered by private insurers (large employers may self-insure) instead of through the state government.[66]

[*]  The Social Security payroll tax does not have to be paid on incomes above $113,700. "Social Security and Medicare tax rates; maximum taxable earnings," (U.S. Social Security Administration, 2013), (accessed Oct. 2, 2013). Also note that both rates doubled for self-employed persons.

[†]  Employers can receive substantial credits against these payments if they promptly pay state unemployment insurance. "Unemployment Insurance Tax Topic," (U.S. Department of Labor, 2012), (accessed July 9, 2013).