Understanding Your State Unemployment Rate & Why It Changes Over Time
For most companies, payroll is already their biggest expense—sometimes reaching 70.2% of employer costs, according to the U.S. Bureau of Labor Statistics. As if that wasn’t bad enough, states have these employers pay for unemployment insurance as well—often 1%–10% of overall wages.
That’s a lot of money.
Believe it or not, you may have more control over your unemployment tax rate than you realize. By understanding the rules and standards around these rates, you can advocate for your company.
To help, we’ve outlined everything you should know about your state unemployment rate, why it changes over time, and how you can file an appeal.
Related Reading: Your ‘Employee Or Independent Contractor?’ Checklist
Key Terms to Know
Before we get started, it’s important to understand both SUTA and SUI. Although they’re related, they’re slightly different:
State Unemployment Tax Act (SUTA)
This is a mandatory state-level payroll tax paid by employers to fund unemployment benefits. This is similar to FUTA, the Federal Unemployment Tax Act.
State Unemployment Insurance (SUI)
Unemployment insurance is a resource that helps workers receive temporary and partial wage replacement after becoming unemployed. Employers pay the insurance on every payroll in case a worker becomes unemployed and qualifies for benefits.
So, while SUTA and SUI are similar, they are two different things.
What Is An Unemployment Rate?
Your employer unemployment rate is the rate at which you pay state unemployment insurance taxes. This rate often falls somewhere between 1% and 10%, and it can vary based on industry, claims, and other facts—as we’ll explore momentarily.
Why Does Your State Unemployment Rate Change?
Your state unemployment rate can fluctuate from year to year based on a number of variables. The most important factors include:
- The number of unemployment claims filed against your account – If your account has been hit with a flurry of unemployment claims, you may have a higher rate to help offset those claims.
- The length of time you’ve been in business – Younger companies are prone to instability and failure, while well-established businesses may deliver stable, longer-term employment.
- Your industry classification – Some industries are more volatile than others, and they experience greater labor turnover as a result. Manufacturing and mining, for example, may experience greater turnover than industries such as education and public utilities.
What Can You Do If You Don’t Agree With Your SUI Tax Rate?
If you believe your unemployment tax rate is incorrect, act quickly to address it. Most states provide a limited window (often 15–30 days from the date of the rate notice) to challenge the determination. Your options:
1. File a protest.
A protest is typically the first step. This involves formally notifying your state unemployment agency that you disagree with the assigned rate.
You’ll need to provide documentation supporting your claim—such as payroll records, separation details, prior rate notices, or proof that certain claims should not have been charged to your account.
Errors can occur due to misclassified employees, incorrect wage reporting, or improperly attributed claims.
2. Appeal to the unemployment insurance agency.
If your protest is denied, you may escalate the matter through a formal appeals process. This may involve a hearing (sometimes by phone) where you present evidence and explain why the rate should be adjusted.
3. Consider voluntary contributions.
Some states—like New Jersey, Texas, and Washington—allow employers to make a voluntary payment to reduce their taxable balance and potentially “buy down” their rate for the upcoming year. This strategy can make sense if the long-term tax savings outweigh the upfront cost.
What Is A Credit Week? (For Pennsylvania Employers & Employees)
Many states have some sort of minimum requirement to be eligible for unemployment benefits, whether that be working a minimum number of hours or earning enough money over a certain period of time.
Pennsylvania, though, works by tracking “credit weeks”—calendar weeks when someone has earned $116 or more. An individual has to track 18 credit weeks over their base year to be eligible for unemployment.
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