Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

We are a defendant in various lawsuits and claims arising in the normal course of business.  Management believes it has valid defenses in these cases and is defending them vigorously.  While the results of litigation cannot be predicted with certainty management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.

Federal Unemployment Taxes

Employers in certain states are experiencing higher Federal Unemployment Tax Act (“FUTA”) tax rates as a result of certain states not repaying their unemployment loans from the federal government in a timely manner.  The Benefit Cost Ratio Add-On (“BCR”) is an additional tax on the FUTA wage base for employers in states that continue to have outstanding federal unemployment insurance loans beginning with the fifth year in which there is a balance due on the loan.  States have the option to apply for a waiver before July 1^st of the year in which the BCR is applicable.  Fourteen states, including California, are at risk for assessment of the BCR in 2014.  We expect most states will be notified by the federal government in the third quarter of 2014 if a waiver has been granted in response to the state’s application.  The potential additional FUTA tax associated with worksite employees in these 14 states was approximately $3.6 million as of March 31, 2014.

Generally, our contractual agreements allow us to incorporate such increases into our service fees upon the effective date of the rate change.  However, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the customers’ contracts could be limited, resulting in a potential tax increase not being fully recovered.  As a result, if these FUTA tax increases are instituted and not collected from our clients, such increase could have a material adverse effect on our financial condition or results of operations.