Whether you are a small single-state or a large multi-state employer, one thing is for sure, managing unemployment insurance (UI) is complex.  At the beginning of each year employers receive their UI tax rate letters from state unemployment insurance (SUI) agencies, which dictates the UI tax rate the employer must pay for the upcoming fiscal year.  Maybe you recognize the importance of this letter and have an existing audit process in place to scrutinize the tax rate calculation.  However, if you are simply “filing it” then I encourage you to keep reading because unlike many other business taxes you can help control UI costs through improved administrative practices.  

Employer UI tax rates are impacted both by your claims and tax management practices.  Focusing on claims management, the number of claims, protests won, and charges against your UI account all impact your UI tax burden. 

• The first step in working to lower your UI tax rate is to audit the tax rate notification you receive each year.  Surprisingly, the calculations and/or the numbers used in that calculation can be erroneous.  Check their numbers against your records (if you have records) and double check their math – you might be surprised to find that the rate they are dictating for you is not correct.  Remember to do this quickly after receiving this letter as you only have 30 days to protest it.

• Taking a look at claims, remember that your responses are not only time sensitive but also required.  Under the UI Integrity Law, SUI agencies can impose financial penalties and employer’s risk losing their FUTA tax credit when they demonstrate a “pattern of failure” to respond to claims and requests for additional information from the SUI.  With a 100% on timeliness response rate in mind, create an administrative process that allows your organization to receive and respond to SUI requests efficiently and effectively. 

• Remember that every claim comes with a cost, that is, unless you protest and win (or the claimant finds work before collecting)!  Establish protest goals for your organization and begin protesting applicable claims.  Additionally, be sure to continuously audit your protests and their results in order to implement best practices for future protests.

• Lastly, review charges against your UI account.  This step is especially important considering that SUI agencies have an average 13% overpayment or error rate.  Set a reminder for every favorable protest decision to trigger a letter to the SUI agency requesting credits back for charges incurred against your account prior to the protest decision.

As a rule of thumb, when an employer’s protest win % increases, their charges will decrease and these changes can lead to UI tax rate reductions.  How do I get there from here you ask?  Utilize the suggestions above to improve your administrative practices and be sure to start UI claims tracking to see your performance against your goals.  Once you begin monitoring and analyzing your UI claims management performance you will recognize trends that lead to reduced UI costs.