A state unemployment insurance tax rate calculation method that divides the total UI benefits charged to an employer's account by the employer's average annual taxable payroll to determine the employer's experience rating.
Why the benefit ratio method matters for employers
State unemployment insurance tax rates are not fixed. Most states use an experience rating system that adjusts each employer's SUI tax rate based on their history of former employees collecting unemployment benefits. The benefit ratio method is one of the most common experience rating approaches. Under this method, the state calculates a benefit ratio by dividing the total unemployment benefits charged to the employer's account over a defined period (often the most recent three years) by the employer's average annual taxable payroll for the same period. A higher ratio means more benefits were paid relative to payroll, which translates to a higher SUI tax rate assigned to a rate schedule. A lower ratio means fewer claims, which earns a lower rate. The tax rate itself is read off a rate table, with the benefit ratio mapping to a specific row in the table. Rate tables are assigned annually by the state based on the overall health of the UI trust fund. In lean fund years, the table shifts, and all rates increase across the board regardless of individual employer experience. Employers can influence their benefit ratio in two ways: by reducing layoffs and terminations that lead to valid UI claims, and by contesting UI claims where the separation was for misconduct or the claimant quit without good cause. Each successfully contested claim that is denied benefits is not charged to the employer's account, keeping the benefit ratio lower. New employers typically receive an assigned new-employer rate until they have enough experience to be rated.
How BEG handles Benefit Ratio Method for clients
BEG Managed Payroll tracks SUI rates across all states where clients have employees and updates withholding tables when rates change. BEG files quarterly SUI returns accurately and on time, which protects clients from penalty rates for late filing. Managing your SUI rate over time is part of BEG's fully managed payroll service at $25-$45 per employee per month. Learn about BEG Managed Payroll.
Frequently asked questions
How often do SUI rates change?
SUI rates are typically assigned annually, effective January 1 of each year. Employers receive a rate notice from the state late in the preceding year. Rates change based on the employer's benefit ratio and the state's overall UI trust fund condition.
What is a new employer SUI rate?
New employers that have not yet accumulated enough experience to be individually rated receive a standard new-employer rate set by the state. This rate varies by state and often by industry. After accumulating the required period of experience, the employer transitions to an experience-rated rate.
Can I protest a UI benefit charge to my account?
Yes. When a former employee is approved for UI benefits, the employer receives a notice of claim. Employers can respond with documentation showing the employee was terminated for misconduct or resigned without good cause. A successful protest results in the claim being charged to the pooled fund rather than the employer's account.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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