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Calculating an Employer's Unemployment Insurance Contribution Rate



The U.S. Department of Labor recently released their July 2016 to September 2016 report on the status of the Unemployment Insurance Program. Additionally, Utah sent notification of 2017 contribution rates to all employers. 1 out of 5 employers were able to access this information the very next day by opting into Electronic Correspondence at jobs.utah.gov.


These new rates became effective Jan. 1, 2017. Employers will see the new rates when they file their report for January to March wages in April 2017.


Thanks to the effective management of our state legislature and the growing economy, Utah’s trust fund continues to be the 4th healthiest in the nation. This fund is used to pay benefits to eligible individuals. A healthy fund means that we have a robust enough balance to weather another significant increase in people claiming unemployment and that we’re not collecting more from employers than is necessary.




CALCULATING RATES

There are four things that go into calculating how much an employer will pay to cover their workers with Unemployment Insurance: 1) the taxable wage base, 2) the social cost rate, 3) the benefit cost ratio, and 4) the reserve factor.


When assessing liability, there is a trade-off between the taxable wage base and the rate. Taking both into account, Utah ranks 14th for lowest average tax rate on total wages. For every $10,000 in wages paid, employers pay about $49 for unemployment insurance coverage (just under 0.5 percent of payroll). This has continued to drop incrementally from $65 one year ago.


1) Taxable Wage Base

An employee could earn $50,000 in wages during the year, however, employers would only pay unemployment contributions on a portion of those wages. For 2017, Utah’s taxable wage base will increase by 2.8 percent to $33,100. Anything above that amount is not considered taxable for unemployment purposes. By statute, the base is indexed to go up or down according to average wages in the state. This increase is indicative of the growth we’ve seen in Utah’s economy and is caused by an increase in the amount of wages that are now being insured.


2) Social Cost Rate

This is considered the minimum employer rate and remains unchanged at 0.2 percent for 2017. It is primarily made up of unemployment benefit costs that were paid and could not be attributed to one particular employer. For example, if an individual quits for compelling family reasons and meets all other eligibility requirements regarding availability for work. With the new taxable wage base, 75.8 percent of Utah employers qualify for the minimum rate and will pay up to $66 per employee for the year.


Note: The next two elements only apply to the 24 percent of Utah employers that do not qualify for the minimum rate because they had some liability for unemployment benefits in the last four fiscal years.






3) Benefit Cost Ratio

The benefit cost ratio is a calculation of total unemployment benefit liability divided by total taxable wages for a four-year period. In 2017, the look-back period shifted forward one year to evaluate activity occurring from July 2012 through June 2016. The 1 out of 4 employers that are impacted by this generally experienced less unemployment claims being filed against them in the new addition of 2016 compared to last year’s inclusion of 2011 and, combined with the increase in total wages, will see this ratio improve.


4) Reserve Factor

When the state trust fund balance falls within a range specified by the legislature, the reserve factor is set at 1.0. When the balance goes below this range, the reserve factor increases. When it goes above the range, it decreases. For 2017, the balance was slightly above the range. This caused the reserve factor to be set at 0.95, effectively giving those impacted employers an automatic decrease in their contribution rate.