Whats Happening To Our Sui Premiums
Apr 27, 2010
I have been working with a client who has had a shock in the form of increased SUI premiums due. Here is a company with a great history of keeping employees happy and working. But as many have encountered in this latest economic downturn, they had to face facts in 2008 and take measures to ensure the viability of their company...they laid off several employees.
What happened next is not a singular story among businesses. In 2009, claims on State Unemployment were high for this company. They had very limited claims on their account in the previous years ($9,000 in 2005) and were happy to be paying premiums for the purpose of taking care of employees in the event they had a downturn in business. Here in 2010 comes the other shoe, their premiums went from .84% to 4.84%. Not only did their premiums go up, but the taxable base went from $32,000 to $36,800.
I think shock is the only word which can describe the feelings of the business owners. This company has had to lay off an additional 4 people this year. Is the premium next year going to quadruple or more again? Fortunately the state rate maxes out at 6.02%, so there is little more that can be exacted from them in the way of premiums. Here is the issue, our state - and this is very common in most states - looks at a 4 year running history to determine the premium level for a company. This particular company had no claims in year 1, 2, or 3. Year 4 was the year of large layoffs. The premium level is calculated by taking the claims for the 4 year period and dividing by the wages for the same period. This % then is used to determine the premium level. Washington has 40 levels. The company I am referring to here has been moved from level 1 to level 28. On top of this level there is an additional premium (social factor) which is assessed to all companies. This is in order to help smooth out the costs across the whole coverage base. So the issue here isn't just for one year to compensate for a bad year, the experience rating will stay with the company for the next 4 years until 2009 falls out of the calculation in 2014.
Since SUI is mandated and there is not opting out of the system, companies need to make sure they are looking at their experience rate, and make sure they are appropriately positioning themselves to the new reality of higher premiums. Obviously it is going to be very important to have your trusted advisors – like B2B CFO® work all these issues into forecasting tools to make sure your are prepared to meet the challenges all will face in the coming years.