BUSINESSES EXPECTED TO SEE INCREASE IN UNEMPLOYMENT INSURANCE TAXES AFTER RECORD-SETTING SPAN OF LOW RATES

OKLAHOMA CITY, OK – After 11 years of historically low unemployment insurance (UI) tax rates and one year at the second-lowest rate provided by law, businesses currently operating in Oklahoma are expected to see their UI tax rates increase for 2004. New businesses in the state will be exempt from this increase and will continue to pay at the minimum UI tax rate.

All employer taxes are deposited in the federal unemployment insurance trust fund earmarked for Oklahoma and used to pay unemployment benefits. According to Oklahoma Employment Security Commission Actuary Roger Jacks, the combination of historically low UI tax rates and a rise in UI benefit payments due to the lagging economy have left the UI trust fund balance lower than it has been in over a decade. ”In recent years, employers have been enjoying minimal UI tax rates while unemployment benefit payments have been rising dramatically because of the downturn in the economy. At some point, the declining trust fund has to be replenished.”

State law ties both employer UI taxes and unemployment benefit payments to a formula that is calculated each year. This formula is the ratio between the five-year average of the total annual UI benefit payments and the year-end UI trust fund balance. Because the formula is computed annually, individual UI tax rates for employers could change each year depending on these two factors.

“We surely hope it’s a short-term situation,” says Mike Seney, Vice President of Operations for the Oklahoma State Chamber of Commerce. “Our trust fund is in a better position than most states. With the economy in recovery, hopefully we won’t see these increased rates for more than a year.”

Businesses won’t be the only ones impacted by the economic downturn. In addition to the employer tax rate increase, the amount of weekly unemployment benefit payments and the maximum amount an individual is eligible to receive in unemployment benefits will drop for 2004.

“It’s very unfortunate,” said Jim Curry, President of the Oklahoma AFL-CIO. “The good part about the state workforce system is that every dollar spent in unemployment benefits eventually results in $2.15 being added to the state economy. Hopefully the economy will turn around quickly so we can start seeing the benefit of this investment.”

Oklahoma uses an experience-rating system to determine UI tax rates for businesses. The system is designed so an employer with few former employees collecting unemployment benefits will have a lower UI tax rate than an employer with many former workers receiving benefits.

In 2003, employers paid a minimum of $23 per employee and a maximum of $679 per employee for UI taxes. Current agency projections estimate that in 2004 employers will pay a minimum of $43 and maximum of $1,316 for each employee.  Individual employer contribution rates for the new year will not be calculated until the first quarter of 2004.

For more information on the UI Trust Fund and the conditional factors that affect it, please contact OESC Actuary Roger Jacks at (405) 557-7106.

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