The Oklahoma Employment Security Commission recently announced that the unemployment insurance (UI) tax rates paid on employee wages by state businesses will increase for 2011.
These tax dollars are deposited in the state UI trust fund to pay regular state unemployment claims. Although individual employer tax rates have not yet been released - but should be by the end of September - business owners can begin now to prepare for the coming year.
State law requires OESC to re-compute employer UI tax rates annually. This is done by calculating a ratio of unemployment benefits paid and the balance of the UI trust fund. The ratio indicates which of the five UI tax rate schedules will be used for the coming calendar year.
The recent recession caused a dramatic jump in unemployment benefit payments, draining the trust fund by nearly $485.8 million since December 2007. As a result, Oklahoma will move from the lowest tax schedule, currently in use, to the highest schedule in 2011.
Oklahoma uses an experience-rating system to compute an employer's individual tax rate. This system is designed so an employer with few unemployment claims filed against it will have a rate lower than one that has many ex-workers filing for benefits. These tax rates fall along a range of values, depending on an individual employer's history.
In 2010, more than 73,000 Oklahoma businesses were experience-rated. Of these, 1,773 paid the maximum UI tax rate of 5.5% under the 2010 tax schedule, while about two-thirds of these employers paid 0.1%, the minimum rate. This majority will see their rates triple to 0.3% in 2011. Fortunately, this won't be the case for all employers.
State law caps the amount an employer's UI tax rate can increase at two percentage points once the rate reaches 3.4%. In other words, if an employer's 2010 tax rate was below 3.4%, the highest his or her rate can rise in 2011 is 5.4%. If an employer's 2010 tax rate was 3.4% or above, it can only increase by two percentage points, up to the maximum rate of 9.2% for 2011. Not all employers will see their UI tax rates increase, due to the experience-rating system.
A majority of the state's employers are small businesses. In fact, Oklahoma businesses averaged a little more than 14 employees each in 2010. Increased UI tax rates have the potential to affect smaller businesses more adversely than larger ones, so it is important that state employers make sure all information on file with OESC used to determine their UI tax rate is up-to-date and accurate. The following guidelines will help employers in this effort.
Review and respond to unemployment claims filed against your business.
When an ex-employee files an unemployment claim, he or she must provide information describing the facts surrounding the work separation. The employer is then contacted to verify these facts. It is important for businesses to review these facts and respond fully in a timely manner. Although there is an appeals process for employers to protest an unemployment claim, an employer can severely hinder his or her case by not providing detailed support for their position in the time allotted.
Understand UI eligibility requirements.
UI claimants are only entitled to UI benefits when they become unemployed through no fault of their own. Employers need to understand what constitutes misconduct on the employee's part and what is considered quitting for good cause. This and many other employer subjects are addressed in The Employer's Guide to Unemployment Insurance, available at www.ok.gov/oesc_web/documents/OES-175.pdf.
Respond promptly and fully to information requests from OESC.
In addition to notification of a pending UI claim, employers receive other correspondence from OESC, including requests for employment status information and weekly earnings of past and current employees. A full and timely response can help detect and stop improper UI benefit payments to ex-workers, which helps keep an employer's experience rating down.
Report and pay UI taxes promptly.
Although it is too late for this to affect 2011 UI tax rates, Oklahoma businesses need to understand that an employer who is delinquent in filing reports or paying taxes is not eligible to receive the lowest UI tax rate for which they qualify in the next calendar year.
Control your information.
A useful tool is OESC's new self-service employer portal, EZ Tax Express. Located at https://eztaxexpress.oesc.state.ok.us/, it provides employers with an online option to file quarterly tax reports, pay quarterly taxes and view and manage account information.
The portal allows employers to access a variety of information online, including benefit wage appeal status, employer tax rates, and employer and employee information. By reviewing their account periodically and keeping it current, employers can ensure that all information used to determine their UI tax rate is correct, helping guarantee the lowest tax rate possible.