October 15, 2018  
 
Gaebler.com is a daily online magazine covering small business news. We help entrepreneurs transform ideas and innovations into greatness.

Articles for Entrepreneurs

 

Unemployment Benefits

 

Experience Rating In Unemployment Insurance

Experience is a good thing, right? Not necessarily. When it comes to an employer's unemployment tax burden, experience can quickly become a double-edged sword. Here's everything your small business needs to know about an experience rating in unemployment insurance.

In the US, unemployment benefits are handled by states.
(article continues below)

When an employee is laid-off or experiences an unemployment event, he can apply for benefits that are paid directly from the state's unemployment fund.

State payment of unemployment benefits camouflages the fact that unemployment benefits are actually paid by employers. The funds that fill the state's unemployment coffers are there because the state has collected unemployment taxes from employers.

An over-simplified view of the unemployment tax system is that employers are required to pay into the system the amount of benefits their workers have withdrawn plus an additional amount that covers unfunded portions of the state unemployment benefits program. The way this is achieved is through the application of a state unemployment tax that is based on how often the company's workers have tapped into unemployment benefits.

The amount of tax each employer is required to pay is determined by something the state calls your "experience rating". The higher your experience rating, the more tax you will be expected to pay for each of your employees.

Experience Ratings

Experience ratings vary based on the employer's experience with unemployment. It is rooted in the idea that the cost of unemployment compensation should be indexed to the amount of involuntary unemployment experienced by each company's employees.

At the present time, there are four different formulas states use to determine employers' experience ratings. But you should know that if the amount of benefits your workers have received over the past five years exceeds the amount of unemployment you have paid, your experience rating (and your current unemployment tax amount) will be significantly higher.

The bottom line is that when it comes to experience ratings it's in your best interest to minimize the amount of benefits that are distributed to your workers.

Other Considerations

Unfortunately experience ratings aren't the only factor that determine the amount of unemployment tax your business will be expected to pay. For-profit ventures are also expected to pay a social-cost tax. These funds are used (a) to cover the unemployment benefits that can't be assigned to a specific employer and (b) to create a buffer that can be used during periods when the national unemployment rate skyrockets.

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

An Unemployment Insurance System Primer
Minimizing Employer Unemployment Taxes
SUTA Dumping


Conversation Board

What's your take on employer employment tax experience ratings? We welcome your questions, comments and advice.


Questions, Comments, Tips, and Advice  Code Image - Please contact webmaster if you have problems seeing this image code
Problem Viewing Image
Load New Code

 

 

Additional Resources for Entrepreneurs

Search Engine Marketing

Social Marketing Optimization

Business Forms

Business in the Jungle - Business in Fiction - Negotiating

Radio Ad Costs

Newspaper Advertising Rates

City-Specific Resources for Entrepreneurs

Small Business Insurance

Global Entrepreneurship

China & Entrepreneurs