State unemployment insurance is an important lifeline for millions of families across the country.
The money to pay for this insurance is provided by employers, and the state governments administer the programs. Most companies don’t think about state unemployment insurance because they simply outsource the calculation and payment to a third-party provider, typically a payroll processing company. While you may not calculate it yourself, it’s still important to understand how it works because some simple planning can save your company tens, or hundreds, of thousands of dollars in unnecessary insurance payments.
Calculating state unemployment insurance rates
The table below contains summary information from the 50 states and the District of Columbia with respect to state unemployment insurance rates. The table is accurate as of the end of January 2011. It’s important to check with your payroll provider or state government to determine how changing laws may impact your company’s unemployment insurance bill.
The taxable wage base
The taxable wage base represents the portion of each employee’s payroll that is used to calculate the state unemployment insurance tax that is due. The Federal Unemployment Tax Act requires that this taxable wage base be a minimum of $7,000 per employee. As the table indicates, only three states are at the minimum. Florida is also expected to increase the taxable wage base to $8,500 in 2012.
State unemployment insurance rate
The taxable wage base is then multiplied by the state unemployment insurance rate to determine actual tax due. Here is where things can get tricky. The rate to be used varies according to a number of factors:
- If your company is in a certain industry, the rate will be different. Companies in the construction industry, for example, pay a much higher rate in Delaware, Illinois, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Pennsylvania, South Dakota, Virginia, Washington, West Virginia, and Wisconsin.
- If your company is a new employer, the rate will also vary. If a company has former employees collecting (or that have collected) unemployment for being fired (for eligible reasons) or laid off during the previous year, the rate paid will be different than the rate for companies that are just starting to pay into the system and have no employees collecting.
- If your company has a large payroll, the rate will vary. A company’s aggregate payroll is also a factor that is used to consider the state unemployment insurance rate to be used.
This table indicates the minimum new employer rate, the minimum rate, and the maximum rate for companies that are not considered new employers.
Go to the article: Protect Your Company Against Unemployment Insurance Increases
