When you want to understand your unemployment insurance (UI) tax cost, the focus often centers on your unemployment tax rate (if you are a taxable employer). This is a very important component when understanding UI tax costs. However, it is only one factor in the calculation of total unemployment expenditures. The other component is the taxable wage base, which varies by state. In many states, the taxable wage base can even vary from year to year. When these variables are combined with the size of your payroll, the true picture of your overall unemployment costs emerges. To many, this information may not be noteworthy. What you may find a bit more interesting is which states are the most and least expensive for employers from a UI tax perspective.
To demonstrate this, we assumed average gross wages per employee to be $30,000 in all 50 states and then calculated the tax cost per state based on their minimum and maximum tax rates. The results are interesting. In 2016, the lowest UI tax rate is 0% in Hawaii, Iowa, Missouri, Nebraska and South Dakota. If an employer achieves the minimum rate in these states, their UI cost would be zero, and the taxable wage base would be immaterial. However, most states do not have a minimum tax rate of 0%. Of the remaining states, Arizona, Georgia, Florida, Wisconsin and Louisiana are the least expensive states for overall UI cost. The per employee cost in these states ranges from $2.10 in Arizona to $7.70 in Louisiana.
By contrast, the most expensive states, when applying the minimum tax rates, are New York, West Virgina, Vermont, Pennsylvania, Connecticut, the Virgin Islands, Oregon, New Jersey, Rhode Island and Alaska. Based on gross wages of $30,000 the UI cost per employee ranges from $174 in New York and $450 in Alaska.
When the costs are analyzed using each state’s maximum rate, the results are equally pronounced. The least expensive states, in order, are Florida, Puerto Rico, California, Nebraska, Virginia, Louisiana, Alabama, Arizona, Washington DC and Maryland. The cost per employee based on the maximum tax rate ranged from $378 in Florida to $638 in Maryland.
Due to the deep recession in California, many employers there are still subject to the maximum rate of 6.2%. Even so, the total UI cost for an employee earning $30,000 is $434, slightly less than the minimum cost in Alaska. (Note: this analysis does not account for the higher FUTA taxes currently imposed in California).
The 10 most expensive states for per employee UI costs are Washington ($1,716), Alaska ($1,770), Montana (1,890), New Jersey ($2,100), Iowa ($2,122), Rhode Island ($2,154), Wyoming ($2,237), Minnesota ($2,730), Utah ($2,850) and North Dakota ($3,216).