UI Forum (ADP Unemployment Group)

Fourth Quarter 2016

How Does Unemployment Insurance Work?

So how does state unemployment insurance (UI) work? Here are some facts about UI you should know:

  • Under federal and state laws, your company must register with your state UI agency to establish a UI account and pay taxes in each state where you conduct business.
  • Your company pays the entire cost of benefits through state UI tax contributions. These contributions are funded through taxes – federal and state - paid by your company on a portion of each employee's earnings known as the taxable wage base. For federal purposes, the taxable wage base is $7,000 (this amount may be adjusted from time to time). This means that an employer must pay federal taxes on the first $7,000 of a worker's earnings. A state taxable wage base functions in a similar fashion; however, it ranges from $7,000 (the minimum established by the federal government) to $45,000 based on each state's statutory requirements.
  • State UI tax contributions are generally credited to a reserve account, from which benefits are drawn to pay the unemployed worker. Employers make these deposits to the state UI agencies, and in turn, the state UI agencies make the payments to the unemployed worker.

About State UI Tax Rates

State UI taxes are an expense that can diminish corporate profits, and cannot be charged back to employees. In addition, it's a corporate tax that increases or decreases based on claim experience. The more benefits charged to your company's state UI account, the higher your tax rate can climb.

Each year, for example, states assess their reserve account to ensure there are sufficient funds to cover the benefits for all eligible workers. If the funds are deemed insufficient because benefit payments have depleted the state's UI account, the tax rate will be increased for all employers to make up the difference.

A state's UI tax rate can have a significant impact on how much individual employers are required to pay.

If the state UI tax rate is...
And the employee's taxable earnings are...
The cost per employee for state UI coverage will be...
7.00% $7,000.00 $490.00
2.70% $7,000.00 $189.00
0.30% $7,000.00 $21.00

Note: There are currently 31 states (including Washington D.C., Puerto Rico and the U.S. Virgin Islands) that use a reserve ratio formula, as described in the above table. There are 19 states that use a benefit ratio formula, 2 states that use a benefit wage formula, 1 state that uses a combined formula and 1 state that uses a payroll variation formula. You can learn more about the formulas by visiting http://oui.doleta.gov/unemploy/pdf/uilawcompar/2016/financing.pdf.

Using this table as an example, for a business with 1,000 employees the cost for state UI coverage could range from $21,000 to $490,000 per year, depending on the assigned tax rate.

Under this arrangement, one unwarranted claim could impact your company's UI tax rate by driving you into a higher UI tax bracket. You can help mitigate charges and reduce unwarranted costs by following your corporate personnel policies and establishing an effective UI claims management procedure.

State Unemployment Law Updates

Several states have enacted recent law changes that you should understand.


The Arizona Department of Economic Security recently amended Sec. 23-672, decreasing the state's appeals board (a panel that reviews the record and decision from an administrative hearing) from four members to three. The change also provides that a decision by the appeals board is controlling if it is issued by at least two concurring members.

A copy of the entire amendment can be found at http://www.azleg.gov/legtext/52leg/2r/laws/0185.htm.


In a press release dated August 25, 2016, the Idaho Department of Labor (DOL) warns of a recently discovered scam to solicit personal information from UI claimants and other parties.

Emails are being sent from info@unemployment-assist.com and contain a subject line that contains one of the following:

  • ID Eligibility Requirement 1: Must be Available for Work, or
  • Verification Required: 2nd Request

The Idaho DOL reminds claimants that the agency does not require email verification of a UI claim, nor does it utilize a third-party to contact claimants. They advise UI claimants to never click on such an email and to delete it immediately.

The press release can be found at http://labor.idaho.gov/news/NewsReleases/tabid/1953/ctl/PressRelease/mid/3872/itemid/3014/Default.aspx.


There has been a recent development related to HB-150, which included a reduction in the UI benefit week maximum from 20 weeks to a sliding scale ranging from 13-20 weeks based on the statewide unemployment rate.

As background, after HB-150 was passed by the Missouri legislature in April 2015, Governor Jay Nixon vetoed the measure on May 5th of that year. The House overrode the Governor's veto on May 12th, but the Senate did not override the veto until September 2015. The provisions of HB-150 thus became effective in January 2016.

However, in July 2016 the Missouri Supreme Court ruled that Senate failed to override the Governor Nixon's veto in a timely fashion, and therefore it was upheld. This reversed the changes contained in HR-150, and UI benefits returned to the 20 week maximum as it had been under prior law.

It's not clear how the Missouri Division of Employment Security will address any UI benefit decisions issued between January 1, 2016 and the Missouri Supreme Court decision that upheld Governor Nixon's veto.

Further details can be found at: http://www.house.mo.gov/billsummary.aspx?bill=HB150&year=2015&code=R.

Revised Weekly Benefit Amounts

Several states have recently modified their weekly benefit amounts (WBAs):

  • Connecticut: Effective October 2, 2016, the minimum WBA will be $15 and the maximum will be $616.
  • Massachusetts: Effective October 2, 2016, the minimum WBA will be $14 and the maximum will be $742.
  • North Dakota: Effective July 3, 2016, the minimum WBA will be $43 and the maximum will be $630.
  • West Virginia: Effective July 3, 2016, the minimum WBA will be $24 and the maximum will be $424.
  • Wyoming: Effective July 3, 2016, the minimum WBA will be $33 and the maximum will be $489.

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