Calculation of the State Unemployment Insurance (UI) Tax Rate for Wyoming
by: Sherry (Yu) Wen, Economist
"An increasing proportion of Wyoming employers were eligible for the minimum tax rate in 2000 (39.7%) and 2001 (42.5%). This increase indicates that more employers have experienced prosperous times (few or no layoffs) during the past four years."
Each year, the Unemployment Insurance (UI) tax rate has the potential to change for employers. In 2001, the minimum UI tax rate is 0.2 percent and the maximum is 8.7 percent. The Legislature has established parameters for when and how adjustments in the tax rate occur. However, how much an employer will pay depends heavily on the firm's historic operation or the unemployment experiences of the firm's industry. This article describes the differences in employer classification used for assigning a tax rate to both new and established employers, and explains how UI tax rates are calculated and, when necessary, adjusted to maintain UI trust fund solvency.
Wyoming UI covered employers are classified into two groups: taxable employers and reimbursable employers. Taxable employers are those required to pay UI tax on a quarterly basis. Over 93 percent of Wyoming's employers are taxable employers. The other 7 percent are reimbursable employers. Reimbursable employers do not pay UI tax up front, but reimburse the state for the total amount of UI benefits paid to their unemployed workers. The majority of reimbursable employers are federal, state, and local governmental agencies.
Taxable employers are further grouped into new employers, whose businesses are less than three years old, and experienced employers. New employers pay UI taxes based on the average tax rate of their corresponding industry. Experienced employers, those in business three years or more, pay UI taxes based on their own experience rates.
The following example illustrates how an industry's average tax rate for calendar year 2001 is calculated:
The experience rates for employers in business more than three years reflect the history of UI claims filed against them. These rates are based on the employer's record of UI benefits paid during the prior three years and the related total taxable wages. The more UI benefits paid to his unemployed workers, the higher the tax rate the employer pays. The following example demonstrates how an experience tax rate for calendar year 2001 is calculated:
By law, the maximum experience rate for any employer is limited to 8.5 percent. Both the industry average tax rate and experience tax rate, directly or indirectly, reflect the past unemployment experience of an industry or a firm.
The final UI tax rate assigned to any employer is the sum of three items:
The minimum tax rate includes two adjustment factors: the noncharged and ineffectively charged benefit3 adjustment and the fund balance adjustment. The adjustment factor for noncharged and ineffectively charged benefits paid is the result of the statewide total benefits paid (as noncharged and ineffectively charged) for the prior state fiscal year divided by total taxable wages for the same time period.
The fund balance adjustment factor is intended to keep the UI trust fund balance at an appropriate solvency level.4 The law requires no fund balance adjustment factor if the UI Trust Fund balance as of October 31 is equal to or between four and five percent of the statewide total wages for the prior state fiscal year. If the fund balance is below four percent, a positive adjustment factor will be calculated. On the other hand, if it exceeds five percent, a negative adjustment factor will be applied. Wyoming has not applied the fund balance adjustment factor since 1994.
The minimum UI tax rate in 2001 is 0.2 percent, the lowest rate since 1994 (see Figure 1). The minimum tax rate has generally decreased each year since a peak (0.4%) in 1997, except in 2000 when the rate was slightly higher than the previous year. This trend means, on the whole, Wyoming employers have been required to pay less and less UI tax during this time period.
The total UI tax an employer pays is the final UI tax rate assigned to him/her multiplied by the associated total taxable wages for the current year. For example, if an employer's total taxable wages in 2001 are $45,000 and the assigned experience rate is 1.2 percent and, assuming this employer did not have delinquent UI tax on September 30, 2000, the total UI tax rate would be 1.4 percent (1.2% base rate plus 0.2% minimum tax rate). The total UI tax amount for 2001 for this employer would be $630 ($45,000 times 1.4%).
Figure 2 represents the percentage of Wyoming employers paying minimum and maximum UI tax rates. An increased percentage of employers were eligible for the minimum UI tax rate (or zero experience rate), 39.7 percent in 2000 and 42.5 percent in 2001. On the other hand, the percentage of employers paying the maximum UI tax rate has decreased since 1999. Both trends may indicate that an increasing proportion of Wyoming employers experienced some degree of prosperity (no or few layoffs) from 1997 to 2000. Other factors may cause or contribute to these trends also, such as a decline in UI monetary eligibility, or an increase in unemployed workers leaving the state or finding a job right away without filing for UI.
Table 1 shows the proportion of employers paying minimum and maximum tax rates in 2001 by major industry. Finance, Insurance, & Real Estate (FIRE) has the highest percentage (61.8%) of employers paying the minimum UI tax rate. Wholesale Trade and Public Administration tie for second with 52.0 percent. Construction (23.6%), Manufacturing (30.5%), and Mining (32.2%) have the lowest percentages of employers qualifying for the minimum tax rate. These three industries have a large proportion of seasonal workers which may explain, in part, the percentage difference among the industries.
In summary, the UI tax rate reflects employers' past unemployment experiences over the long run, but is affected more by the industry's unemployment experience when an employer first opens a new business. The more layoffs an employer or industry incur, the higher the UI tax rate. Wyoming had an increased proportion of employers who were eligible for the minimum UI tax rate in 2000 and 2001, indicating that more employers may have experienced relatively prosperous times (fewer or no layoffs) in the past four years.
1The taxable wage base is 55 percent of the prior year's statewide average annual wage (Wyoming Employment Security Law 27-3-102 (xviii) (A)). The taxable wage base for 2001 is $14,100. An employee's taxable wage equals all wages paid up to the taxable wage base. An employer's taxable wage is the sum of his/her employees' taxable wages. For example, if an employer has three employees with annual wages of $12,000, $25,000, and $36,000, this employer's total taxable wage for 2001 is $40,200 ($12,000 plus $14,100 plus $14,100).
2The state fiscal year (FY) begins on July 1 and ends on June 30 the following year.
3Noncharged benefits are the Unemployment Insurance (UI) benefits paid to unemployed workers but not charged to employers' accounts, such as payments in error, payments involving separation issues, and extended benefits (Wyoming Employment Security Law 27-3-504 (e)). Separation issues include cases where individuals receiving UI benefits voluntarily left work or were discharged from employment because of misconduct. Extended benefits refer to the extended compensation paid to unemployed workers after exhaustion of their regular UI benefit during an economic recession or a specified high unemployment period. Usually, state and federal governments each share half of the cost.
Ineffectively charged benefits are the benefits associated with experience rates over the legislative maximum rate of 8.5 percent (Wyoming Employment Security Law 27-3-501 (a)). For example, if an employer's calculated experience rate is 8.8 percent for 2001, and the total taxable wages are $56,000, the associated ineffectively charged benefits would be $168 ((8.8 minus 8.5%) times $56,000).
4Details on the rules and calculations can be found in Wyoming Employment Security Law 27-3-505.
(total UI taxes paid by industry A in calendar year 2000)
Industry A's average tax rate =
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(total taxable wages1 of industry A in calendar year 2000)
(total UI benefit paid to the unemployed workers associated with employer X
in FY2 1998, 1999, and 2000)
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(total taxable wages associated with employer X in FY 1998, 1999, and 2000)
* the base rate (either the industry average tax rate or experience rate, explained above)
* the minimum tax rate (or adjustment factors)
* 2.0 percent delinquent assessment, if required (based on a review of employer's delinquency as of September 30th)
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