How can employers control their amount of state unemployment taxes?

Almost all the states have experience rating systems under which there is an important relationship between an employer's unemployment benefit charges and the amount of its state unemployment taxes. Usually there is not a one-to-one correspondence between charges, which represent benefits paid to employees or former employees, and taxes because other factors are also involved in determining the tax rate. However, benefit charges are undoubtedly the most important factor in determining tax rates and one of the only factors over which an employer has some measure of control.

To control benefit charges, employers must know whether or not an employee separation is under qualifying or disqualifying circumstances-that is, whether or not it is likely to result in charges to their experience rating accounts-and, if it is under disqualifying circumstances, to protest the claim. However, some employers, for whatever reasons, fail to report separation information that would adversely affect the claimant's chances of being determined eligible for benefits-usually because they feel that permitting a separated employee to collect benefits will have little effect on their total taxes in the long run.

Tips. Here are some employer practices that may help to ensure a good experience rating:

• Know your state's experience-rating system.

• Understand how your account may be charged.

• Become familiar with the noncharging provisions of the state UI law.

• Keep track of the statements furnished by the state agency that reflect the charges on account of benefits paid to employees.

• If the rate has been incorrectly determined, immediately notify the state agency.

• Be careful in the selection process of new employees.

• After hiring an employee, carefully follow their progress. If they prove unsatisfactory, follow relevant laws and your organization's policies to dismiss them.

• Give every employee who leaves a separation interview.

• Keep accurate records concerning the circumstances surrounding an employee's dismissal or departure.

• At the time of separation, notify the separating employee of his or her rights to unemployment insurance. Stress your intention to protest any unjustified claim that the worker might later file.

• Carefully check and reply where necessary to all notices concerning benefit claims, benefit charges, rate information, or requests for separation information from the state agency.

• Be sure to use the forms supplied by the state agency, rather than writing a letter.

• File reports and pay contributions in a timely manner.

• Estimate the effect of future charges to your account.

• Preclude employees from receiving unemployment benefits if they are receiving any other form of compensation from the company.

Voluntary overpayments. Under the laws of many states, an employer can lower its tax rate in the next tax period by deliberately overpaying the UI tax. The savings may be substantial, while the voluntary contribution involved may be quite small. About half the states permit employers to make voluntary contributions to UI. You can check State Laws to see if your state permits voluntary contributions.

The purpose of the voluntary contribution provision in those states having reserve-ratio formulas is to increase the balance in an employer's reserve so that it is assigned a lower rate, which will save the employer more than the amount of the voluntary contribution. In a state with a benefit-ratio system, the purpose is to permit an employer to pay voluntary contributions to cancel benefit charges to its account and thus reduce its benefit ratio.

Be careful. For the most part, the state agencies do not furnish employers with information regarding the amount of voluntary contribution an employer will be required to make in order to obtain a lower rate. On the other hand, most state agencies furnish employers with worksheets that are helpful in determining the amount of voluntary contribution required.

If voluntary contributions are made, they must be identified as such. Note also that, in most cases, voluntary contributions are not refundable; thus, extra care should be taken in making the computation.

In addition, voluntary contributions may not be credited against the federal unemployment tax.