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As RI employers, unemployment insurance affects us all. In our experience, business clients are generally aware that they have costs associated with providing unemployment benefits to former employees. However, they often don’t understand how the unemployment system works. Specifically, clients will ask us how those costs are determined. Let me shed some light on this often ambiguous topic.
How are the costs of unemployment insurance for RI employers determined?
For profit businesses in RI are be subject to the “Contribution” method of funding unemployment claims. In RI, this method is based on several factors.
Employer Account – Each RI employer is designated an Employer Account by The RI Department of Labor and Training (RIDLT). RIDLT maintains a record of additions and subtractions to this account.
Additions include all quarterly tax payments made by an employer for Employment Security.
Subtractions primarily include unemployment benefit payments made to former employees. There can also be subtractions for balancing account charges, if applicable in that year. The balancing account is a way for RIDLT to fund unemployment claims they are not legally allowed to charge to an individual employer’s account.
Employer Account Reserve % – At the close of each experience year (September 30th) the employer’s account reserve percentage is calculated as follows:
Ending Balance in Employer Account ÷ (Total Annual Taxable Payroll for Last 3 Experience Years ÷ 3)
Experience Rating – After 3 consecutive experience years, RI employers are eligible for an experience rating. This rating can range from 1.9% to 10.0% (including 0.21% for the Job Development Fund – JDF) and is determined by looking up the Employer Account Reserve % calculated above in whichever Tax Schedule (A-I) is in effect for that year. The Tax Schedule used in any given year is dependent on the overall financial condition of the RI Employment Security Fund. New employers with less than 3 consecutive experience years are assigned the same experience rating. For 2015 that rate is 2.95%, down from 3.06% in 2014.
Taxable Wage Base – In 2015, most employers will pay their assigned experience rating on the first $21,200 of each employee’s subject wages.
Figuring out your unemployment costs may seem complicated and daunting. Rest assured that a qualified accounting professional, can help you understand these costs and plan appropriately. Next, I’ll share with you 7 surefire ways of controlling these costs.
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