Page 288 - Essentials of Payroll: Management and Accounting

Unemployment Insurance
tially the proportion of unemployment claims made against a company
by former employees it has laid off, divided by its total payroll. In
essence, those organizations with lower levels of employee turnover
will have a better experience rating, which results in a smaller contri-

bution rate.
States can choose the method by which they calculate the contribu-
tion rate charged to employers. The four methods currently in use are:

1. Benefit ratio method. This is the proportion of unemployment
benefits paid to a company’s former employees during the meas-
urement period, divided by the total payroll during the period.
A high ratio implies that a large proportion of employees are
being laid off and are therefore using up unemployment funds,
so the assessed contribution rate will be high. This calculation
method is used by Alabama, Connecticut, Florida, Illinois, Iowa,

Maryland, Michigan, Minnesota, Mississippi, Oregon,Texas, Utah,
Vermont,Virginia,Washington, and Wyoming.

2. Benefit wage ratio method. This is similar to the benefit ratio
method, but uses in the numerator the total taxable wages for
laid-off employees, rather than the benefits actually paid. A high
ratio has the same implications as for the benefit ratio method—
the contribution rate assessed will be high. This method is used
by Delaware and Oklahoma.

3. Payroll stabilization. This method links the contribution rate to
fluctuations in a company’s total payroll over time, with higher
rates being assessed to those with shrinking payrolls, on the

grounds that these entities are terminating an inordinate propor-
tion of their employees. This method is used only by Alaska.
4. Reserve ratio. This is the most common method, being used by

32 states (all those not listed for the preceding three methods).

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