It’s UI Tax Time Again – 5 Ways You Should Audit Your UI Tax Rate Notice

It’s UI Tax Time Again – 5 Ways You Should Audit Your UI Tax Rate Notice

Do you know your unemployment insurance (UI) tax rate in each state where you operate? Not knowing the rate you are paying can be costly, and not auditing these tax rates each year can result in tens or even hundreds of thousands of dollars in overpayments each year.

Since the unemployment insurance tax rate is the only employer tax you can control, it is critical for business owners to periodically audit and monitor their UI tax rates. Your unemployment insurance rate changes each year, and this fluctuation can mean significant savings or loss. Ensuring that the rates are correct is critical to your bottom line.

Your UI tax rate is based on various factors, including the number of UI claims you have paid over the past three years (the lookback period). The state UI agencies take the net UI charges and the gross and taxable payroll over that period, and run it through a formula that varies by state to determine your tax rate for that year. Managing your UI claims and ensuring that the numbers the state UI agency is using are correct is critical to controlling your UI costs.

There are numerous common mistakes that result in higher UI tax rates. You can help to ensure that your tax rate is correct by watching for these five in particular:

  1. Check their total net charges against your records. You should be tracking your UI claims, protests, and charges in some way. By doing this, you can ensure that the numbers in the state UI agency’s calculation match your records – and protest when they don’t.
  2. Audit the payroll numbers that the state agency is using. From time to time, errors occur and the wrong numbers are used to calculate a UI tax rate. You should always compare the numbers used in your tax rate calculation against your payroll records, for both taxable and gross payroll.
  3. Keep track of your UI Reserve Account balance. In many states, your UI Reserve Account balance (the account where your taxes are credited and payments to claimants are debited) is a key factor in determining your tax rate. Keep track of your balance at all times to ensure the number that the state UI agency is using is the correct one.
  4. Check their math. Wherever possible, check the state UI agency’s math to ensure that they calculated your rate correctly. This can be difficult in some states, but if you suspect there is an error, call the agency’s tax team and have them run through the calculation with you.
  5. Ensure that all credits have been applied to your Reserve Account. This one can be a bit tougher to manage. When you are charged for a claim during the period that the agency uses for tax rate calculation and have protested that claim, often your credits are received after that period has ended. You can tell the state UI agency to apply those credits to the correct year if you have tracked them and can provide a list of credits to be applied. Why overpay one year and hope that you get it back the next when you don’t have to?

Because controlling UI costs is time consuming and the state UI laws are confusing, many employers are not very effective or efficient at doing so. In order to manage this process, employers must put practices into place to effectively track and manage UI claims, protests, and charges/credits, and implement policies and procedures for documenting employee discipline, using effective performance reviews, stronger hiring practices, and other HR functions that assist in managing UI costs. If you are struggling to understand the best way to do these things, it might help to call in the professionals by hiring a Third-Party Agent or UI Consultant to help you put these practices into place.

For more information contact HIREtech at 844.hiretec or This email address is being protected from spambots. You need JavaScript enabled to view it.