Benefit Ratio

State unemployment taxes (premiums) are paid according to the amount of benefits charged against an employer's account by its former employees (risk factor). Thus, low employee turnover generally leads to a low tax (premium) rate and high turnover generally means a higher tax rate. In benefit ratio states, the relationship between benefits charged against an employer's account and its taxable payroll is measured. Thus the employer's account is charged with benefits paid to each worker or former worker. At the end of the year, benefits charged are divided by the employer's taxable payroll to compute the benefit ratio, and the employer's tax rate is set by checking the benefit ratio against the state's rate schedules. Generally, the higher the ratio, the higher the tax rate.