Experience Ratings for State Tax Rates
A company's State Unemployment Insurance (SUI) and Worker's Compensation tax rates are determined in part by their experience rating (also called an experience factor), which is a historical measure of insurance claims filed by employees of the company.
States will determine an employer's experience rating using one of four methods:
- The Benefit Ratio method determines the experience rating using the proportion of benefits (pre-tax) paid to former employees in a period divided by the company's total payroll for that period.
- The Benefit Wage Ratio method determines the experience rating using the proportion of taxable benefits paid to former employees in a period divided by the company's total payroll for that period.
- the Payroll Decline method (also called the Stabilization method) examines changes in an employer's payroll over a period. If the employer pays less in payroll over a period, their tax rate will increase.
- the Employer's Reserve Ratio method divides the remaining balance in an employer's Unemployment or Workers' Compensation account by their payroll for a three year period. Generally, a higher balance results in a lower tax rate.
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