Most Texas Employers to See Decrease in Unemployment Insurance Tax Rates

Citing an improved economy, the Texas Workforce Commission (TWC) said most Texas employers will see a decrease in their employer tax rate for calendar year 2006 compared to last year. Texas Unemployment Insurance (UI) rates are down more than two-tenths of a percentage point, on average, and initial claims for UI have declined by more than 25 percent over the last 12 months, according to the Commission.

Sixty-seven percent of Texas’ 400,000 employers will pay the minimum tax rate of 0.40 percent for CY 2006.

The average tax rate of 1.51 percent for CY 2006 is down from 1.74 percent in 2005, while the average experience tax rate is down from 1.63 percent in 2005 to 1.37 percent for CY 2006. The experience tax rate is the sum of the general tax rate, the replenishment tax rate and the obligation assessment tax rate for the year.

The components of the CY 2006 tax rate are:
• The obligation assessment rate – to collect the amount needed to repay the bond obligations due next year. It is experienced rated, based on an employer’s 2005 tax rate.
• The general tax rate – based on claims against an employer’s account. If TWC has paid benefits to former employees who were laid off or separated through no fault of their own in the past three years, then those employers will pay a general tax.
• The replenishment tax rate – charged to all employers to cover unemployment claims not charged to a specific employer. This tax tends to fall during times of economic expansion when there are fewer layoffs and claims decrease.
• The employer training assessment – charged to all employers who are eligible for a computed tax rate to finance the Skills Development Fund and the Enterprise Fund. The Employment Training Assessment calculation is a separate line item on the Employer’s Quarterly Tax Report. The replenishment tax rate is reduced by the same amount, so there is no increase in employers’ tax rates due to this assessment.

The 79th Texas Legislature changed the way the Skills Development Fund is financed. Skills Development Fund provides new and incumbent workers customized assessment and training in response to the needs of Texas businesses. This program is funded by a flat rate assessment, called the Employment Training Assessment, and is a component of the unemployment tax rate.

TWC said it has instituted initiatives to ensure program integrity in several areas, and to increase UI fraud detection and prevention. Through the use of increased work-search verifications, improved automated processes and database cross matches with other agencies TWC has seen a reduction in UI overpayments since January 2004.

Topics Trends Texas Commercial Lines Business Insurance Pricing Trends Training Development