Unemployment benefits are funded through state unemployment taxes, substantially all of which are paid by employers. These taxes vary year over year and are based on (1) a tax rated employer’s experience (turnover, claims, benefit charges, etc.) and (2) the solvency of the state trust fund from which unemployment benefits are paid.
The Average High-Cost Multiple is a measurement used by the Department of Labor (DOL) to evaluate state trust fund solvency to fund unemployment benefits being paid currently, and those benefits to be paid in the future, based on economic trends and forecasts. Evaluated annually by the DOL, if this measurement is calculated to be equal to or greater than 1.0, the fund is considered solvent. Anything below 1.0 is considered insolvent.
As of January 2, 2024, 19 states were considered to have trust funds that were adequately solvent. This was up three (3) states over measured balances going into 2023. Four (4) states were completely insolvent and have outstanding Title XII loan balances from the Federal Unemployment Tax reserves. These loans, if not paid back by November 10, 2024, will result in higher federal unemployment taxes in 2024 for employers in those states.
With the ongoing forecasts of an increasing national unemployment rate, funds in nearly two-thirds of the states could quickly become stressed and/or need to borrow money to stay afloat. As state agencies work towards improving state trust fund solvencies through higher employer tax rate schedules/tables and/or ongoing increases to taxable wage bases, it is important to effectively manage and audit all of your unemployment claims and benefits charged to your experience portion of the tax.
Visit the Department of Labor’s Trust Fund Solvency Report more information: https://oui.doleta.gov/unemploy/docs/trustFundSolvReport2024.pdf
While employers do not have much control over the status of the state trust funds, they can work within their own organization to control unemployment costs. Managing your daily claims, hearings, and charges can have an impact on your overall experience. Working with a partner to ensure that your unemployment tax rates are calculated accurately and looking for tax savings opportunities can help you mitigate the impact of the state’s trust fund status.
At Thomas & Company, we know what it takes to effectively navigate the complex landscape of unemployment cost management while ensuring optimal outcomes for our clients.
To discover how Thomas & Company’s subject matter experts can help your company streamline their unemployment cost management program, reducing administrative burdens and financial waste, reach out to us today.
