Unemployment costs are the only payroll tax that an employer can actually control - it also happens to be one of the largest employer expenses each year.  For this reason (and others we describe in some of our other blogs), it is critical to the bottom line for employers to control or even reduce this tax.  To understand what you can do to reduce your UI costs, you first need to understand how it is calculated. Although each state may calculate the actual tax rate for employers differently, the UI system is based on a single concept — Experience Rating.

Experience Rating is a term referring to taxing employers based on their actual UI experience (performance). Essentially, it measures each individual employer's experience with unemployment and proposes that the cost of unemployment compensation should be paid in such a way that those employers whose staff suffer the most involuntary unemployment should pay at a higher rate than those employers whose workers suffer little involuntary unemployment.

Bearing this in mind, if you do not manage your claims effectively, you pay out more charges against your UI Reserve Account. Your UI Reserve Account is the account employers have in each state in which they operate where UI taxes are paid in and from which payments to claimants (charges) are paid out. The balance of this account is a big part of the calculation of your UI tax rate.  When there are overpayments assessed against your UI Reserve Account, then your tax rate will increase costing you more money in UI tax payments.

UI Tax Rates vary by state (the minimum and maximum) but they generally range from .1 percent to 14.4 percent of the taxable wage base for that state. The taxable wage base is the amount of each employee’s earnings that are taxed by the UI Agency each year for an employer. The taxable wage base varies by state as well, ranging from $7,000 to $44,000 for each employee.  This means that depending on the state, the amount of money that you might have to pay in UI taxes for each employee (each year) could be nearly $4,000 annually.

With these kinds of dollars involved, it is important to know how to manage or even reduce this cost.  Contact Unemployment Tracker or UI Steward for assistance.