The One Tax Rate You Can Control

Take a quick glance at this chart. And ask yourself. Where should my company be?

Range for unemployment insurance tax. Ten employee Firm
StateLowHigh
Arizona$21$5,453
California$1,050$4,340
Colorado$2,510$11,410
Florida$170$3,780
Illinois$710$10,230
Texas$420$6,740

With a small effort this tax can be managed to save you thousands of dollars.

Your business pays taxes for State Unemployment Insurance (SUI). When an employee makes a claim, if your company becomes the 'chargeable employer' your required payments will most likely increase.

For example in 2015:

  • In Illinois you could pay as little as $71 or as much as $1023 per employee per year (the multiplier ranges from 0.55% to 8.15%).
  • In New York you could pay $216 to $1,039 per employee per year (2.1% to 9.9%)
  • In Texas you could pay $42 to $674 per employee per year (0.47% to 7.49%)

The most effective way to control the expense is with simple, consistent, employee management with valid documentation.

Each state has a range of rates that they charge to businesses based on your company's history of unemployment insurance claims by former employees. If you have no claims, your rate will remain low. The more claims you have against your company, the higher the rate.

Every year your company is given a new individual SUI tax rate within the range based on your company's history. When your rate increases, it applies to your entire payroll, not just one employee. The tax rate changes based on your claim history. If your firm has a claim awarded to an employee, the rate goes up. The more claims, the higher the rate. Thus, you can keep your company UI tax low by contesting claims that are not valid or made spuriously.

Some former employees may make unemployment insurance claims for which they are ineligible. Fighting those claims is how you keep your rates low.

Almost 4,000 Unemployment Insurance claim appeals are filed per month in Illinois and just over 4,500 in New York. About 2/3 of all cases are lost by employers in Illinois and over 80% are lost in New York due to lack of documentation. The time and money required to fight inauthentic claims cases is more than made up in a lower tax rate.

Simple processes and documentation can eliminate days of court costs and keep your Unemployment Insurance tax rate low.

In order to ensure that the Unemployment Insurance system awards benefits only to the eligible, employers must take care to have historical documents supporting exactly why an employee is laid off or fired. Performance evaluations and corrective notices provide the necessary documentation as long as they are done consistently, fairly and frequently. All of the documents between employer and employee may be used in deciding unemployment benefit eligibility for unemployment claims.

Illinois averages $25,000,000 in unemployment insurance fraud each year. New York averages $57,800,000. Proper documentation is the only way for employers to ensure that these false claims will not cost the employer. Enterprises have team of people to prepare documentation. Small businesses now have JuvodHR.

Fraud is far from the only issue faced by employers, and one of the easiest to fight. Many unemployment benefit amounts are appealed - either the employer or employee believes they have been wronged. In these situations, only written documentation is usable in court.

The employer must provide written documentation of all corrective notices or warnings given to an employee. The documents must be clear and should reference the employee's job description or the company employee manual or handbook.

Written notices need to include:

  • The employee's performance problem or work rule violation. Be sure to include the date(s) when the incident(s) occurred and write up each incident separately.
  • The action required of the employee to correct the problem. Action needs to be achievable and related to the performance problem. Be as specific as possible.
  • Rules vary by state but the message must be clear: For example: Immediate improvement or correction is necessary. If this problem is not corrected immediately, future disciplinary action may be taken which could include dismissal.
  • A signature from the employee or a witness on the documents is essential.

Without documentation, each side is left to hearsay. Thus, the employer may also require a lawyer or legal consultant and can anticipate many hours spanning a number of days to be spent fighting and, most likely, losing claims appeals.

The employer can control the State Unemployment Insurance tax. Documentation must exist that illustrates the actions that lead employees to being dismissed. With proper documentation, the employer can ensure that no false or illegitimate claims are granted.

Author Susan Mravca and Ali Henke, researcher, contributor, and data analyst specializing in unemployment insurance. Susan and Ali are leading unemployment insurance reform with the Small Business Advocacy Council in Illinois.

Follow JuvodHR