The document provides an analysis of a Pennsylvania Unemployment Compensation Contribution Rate Notice. It explains the six factors used to calculate an employer's contribution rate: the reserve ratio factor, benefit ratio factor, state adjustment factor, basic rate, increase for delinquency, and surcharge adjustment. These factors are used to determine an employer's total contribution rate, which is applied to taxable wages to calculate how much an employer owes in unemployment compensation taxes each year. The document also includes an example notice and walks through how the rates were calculated based on the employer's data.

1. January 2016
You may need to spend some time on this analysis since it somewhat complex, however, if you have never analyzed
your UC Rate notice it is time well spent! I am hoping you will be able to follow this algorithm using your company’s
PA UC Contribution Rate Notice and work your way through the analysis I’ve outlined below to gain a better
understanding of what you are paying to the (PA) Commonwealth each year for UC Taxes, and why you are paying the
rate assigned.
_________________________________________
Interpreting your Pennsylvania Unemployment Compensation (UC) Contribution Rate Notice for Calendar Year 2016
As part of the Act 60 amendments to the PA UC Law, the taxable wage base for employer contributions will be
increasing each year from 2013 through 2018. Effective January 1, 2016, employers will pay UC Taxes on the first
$9,500 of wages paid to an employee in a calendar year.
The UC Tax Rate you pay was communicated to you on your UC Contribution Rate Notice sent out on 12/31/15.
(If the Human Resource department doesn’t have this notice check with your accounting or payroll department)
Each employer has a unique rate based on a six factor calculation
.
1. Three of these factors are fixed (which means every employer is assessed the same % rate);
2. One factor is partially fixed and partially variable; and,
3. Only two factors are 100% variable (which means if an employer has less than 25% in its reserve or if it
lays-off employees it may be paying more than an employer with over 25% in its reserve balance and that does
not lay-off employees).
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2. - EXAMPLE OF A PA CONTRIBUTION RATE NOTICE –
YOUR EMPLOYER CONTRIBUTION RATE EFFECTIVE 01/01/2015 IS 0.63744.
Multiply this rate by the amount of taxable wages paid to each PA employee to determine
the amount of UC employer contributions you owe. The components of this rate are
indicated in the chart below
Reserve Ratio Factor 0.000
Benefit Ratio Factor + 0.008
State Adjustment Factor + 0.010
Basic Rate = 0.018
Increase For UC Delinquency +
Surcharge Adjustment + 0.000918
Additional Contributions + 0.0065
Interest Tax Factor + 0.0110
Total Contribution Rate = 0.036418
You qualify for an experience based rate.
Your rate is assigned in accordance with Section 301.1 of PA UC Law.
Based on your company’s actual data transmitted to you by PA Dept of Labor & Industry at the
bottom of your 2016 PA Contribution Rate Notice
12-Month Periods
(Fiscal Years)
Taxable Wages* Benefit Charges Contribution
Payments*
2013 (7-1-12 to 6-30-13) $1,611,129.11 $10,385.80 $40,536.96
2014 (7-1-13 to 6-30-14) $1,623,272.70 $11,747.04 $37,995.13
2015 (7-1-14 to 6-30-15) $1,715,053.40 $15,208.16 $41,625.46
3 yr totals $4,949,455.21 $37,341.00
Average 3 Year Taxable Wages $ 4,949,455.21 ÷ 3 = Average $ 1,649,818.40
Average 3 Year Benefit Charges $ 37,341.00 ÷ 3 = Average $ 12,447.00
This is based up data provided to your company by PA Dept of Labor & Industry
Average
Annual
Taxable
Wages*
(AATW)
Average
Annual
Benefits
(AAB)
Reserve
Account
Balance*
6-30-2015
(RAB)
Employer
Reserve
Account
Percentage
RAB ÷ AATW
Benefit Factor Ratio
Percentage
AAB ÷ AATW
**Group
Number
(See Footnote)
$1,649,818.40 $12,447.00 $645,172.00 39.11% 0.008 **3
*Rounded to nearest whole $ and only wages reported and contributions paid by September 30, 2015
are used for calculation purposes.
**Group 3: An employer who paid contributions for one or more quarters in each of the three 12-month
periods ending on the computation date (June 30), and for at least one or more of the four completed
calendar quarters immediately preceding such three 12-month periods.
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3. FOLLOWING IS HOW THE RATE IN EXAMPLE ABOVE IS CALCULATED AND APPLIED FOR AN
EMPLOYER WITH 50 FULL TIME EMPLOYEES WHO EACH EARN OVER $9,000 IN THE YEAR.
Factor
RATES BELOW ARE
FROM YOUR
2016
PA CONTRIBUTION
RATE NOTICE
Notes About Calculated Rates
1. Reserve Ratio Factor
(Varies)
0.000
The reserve ratio factor is part of the
experience rate for covered employers.
This factor is determined annually and
ranges from 0% to 2.7%. It remains at 0.000
as long as the reserve account balance is
greater than 25% of the 3 year average
annual payroll.
2. Benefit Ratio Factor (Varies) +
0.008
Your calculated ratio is 0.008; however,
maximum ratio factor is set by the
Commonwealth at 0.051. If the actual ratio
would have been above 0.051 then it would
have been set at the maximum rate 0.051
3. State Adjustment Factor
(Fixed)
+ 0.010
Fixed Rate / Not subject to appeal /Uniform
for all employers.
4. Basic Rate = 0.018
Reserve Ratio Factor + Benefit Ratio Factor
+ State Adjustment Factor
Minimum .0100 - Maximum .0870
5. Increase For UC
Delinquency
+ 0.000
Uniform for all employers. 3.0% will be
added if the employer has not filed all
registration reports required by the
department and/or is delinquent for quarterly
tax report(s) and/or monies through the
second quarter of 2012.
6. Surcharge Adjustment
- Unchanged from 2014 -
(Partially Fixed and
Partially Variable)
(Minimum, i.e., Fixed Rate
Portion is .00051 (.010 X .051 = .
00051)
+ 0.000918
(Item 4 plus Item 5, if applicable x 5.1%
Surcharge)
This surcharge is converted into an element
in the contribution rate by multiplying the
employer's “Basic Rate” (Item 4) by the
surcharge percentage of 0.051. (In this
example .018X.051 = .000918)
Not subject to appeal. Uniform for all
employers. Determined annually by the
Department of Labor & Industry according to
a formula set forth in Law.
7. Additional Contributions
- unchanged from 2014 –
(Fixed)
+ 0.0065
Fixed Rate / Not subject to appeal / Uniform
for all employers.
8. Interest Tax Factor
- unchanged from 2014 –
(Fixed)
+ 0.0110
Fixed Rate / Not subject to appeal / Uniform
for all employers.
9. Total Contribution Rate =
0.036418
Minimum .028010 - Maximum .108937
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4. Below is 2016 rate formula narrative for the six components used in developing the employer's contribution rate
with narrative using actual data from the above PA Contribution Rate Example:
1. Reserve Ratio Factor (RRF) is determined annually. The RRF is 100% variable and unique
to each employer; ranging from 0.000 to a maximum of 0.027. The RRF is based on an
employer's reserve ratio and is a lifetime measure of the employer's risk with unemployment.
A $0 reserve balance for a group 3 employer would result in a 1.2% factor; down to a
negative balance of = or >-20% which results in the maximum 2.7% factor.
Therefore, even in a worst case scenario where an employer has a negative reserve
exceeding 20%, since it is capped at 2.7% an employer would be paying an added 2.7%
of $9,000 ($243.00/employee).
This ratio is determined by dividing the balance in the employer's reserve account by the
employer's average annual taxable payroll for the last three fiscal years (July 1 – June 30).
(i.e., the lifetime unemployment contributions paid by the employer minus the lifetime benefits
charged against the employer's account)
The only other two variables, i.e., ratios within employers’ control are the Benefit Ratio Factor (see item 2
below) and a portion of the Surcharge Adjustment Factor (see item 6 below).
2. Benefit Ratio Factor (BRF) is determined annually and ranges from 0% to 5.1% (This is
100% within employers’ control). This is actually a short term comparison of the employer's
taxable payroll and UC benefits charged. So in a worst case scenario an employer is paying
5.1% of $9,000 ($459/employee). This factor is determined by dividing the employer's average
annual benefit costs for the last three fiscal years (July - June) by the employer's Average
Annual Taxable Wages for the last three fiscal years ending on the computation date (June
30).
In this sample Rate Notice the Benefit Factor Ratio is .00754 which was rounded up to .
008 ($124,470 ÷ $16,498,184 = .8%) Note: the Commonwealth rounded-up, rather than
simply drop the 2nd
decimal as they have done in previous years.
The maximum rate is 5.1% (.051) however since the calculated rate is lower than the
maximum rate factor of 5.1% this employer receives a significantly lower rate of .008. or
$72/employee ($72 X 1000 = $7,200)
Monitoring who is applying for benefits and challenge those who shouldn’t get benefits
does have a small impact on this factor, but obviously the largest impact is having
fewer lay-offs
3. State Adjustment Factor 1% (.01) - This factor acts as an assessment on all employers and
uniformly levies the common benefit costs that are paid out of the Pennsylvania UC Fund, but
which are not charged to any specific employer account. This is also used in calculating your
basic rate, by adding this amount to your Reserve Ratio and Benefit Ratio Factors.
Note: Pennsylvania’s State Adjustment Factor was reduced from 1.5% to 1.0% in 2013
and will continue at 1.0% through 2016.
4. Basic rate is calculated by Adding Reserve Ratio Factor + Benefit Ratio Factor + State
Adjustment Factor Minimum .0100 - Maximum .0870
5. Additionally, delinquent employers are assigned a delinquency contribution rate that is 3%
higher than the rate which they would otherwise be assigned. Good news in this example
since no delinquency rate shows up on the sample statement, which means the
employer is paying the Commonwealth on-time!
6. Surcharge Adjustment Factor (SAF) is only partially within employers’ control) with the
fixed portion set at just slightly over .005%, i.e., .01 X 0.051 = 0.00051. This surcharge is
converted in the contribution rate by multiplying the employer's “Basic Rate” by the surcharge
percentage.
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5. The adjustment factor in this case is .000918 since it is calculated on a basic
rate of 1.8% (.018 X .051=.000918). The impact was $8.26/Employee or $826 for
100 employees. However, even if this employer had a zero “Reserve Ratio
Factor + Benefit Ratio Factor” it would still have to pay the minimum surcharge
rate based on an adjustment factor of .00051 (.01 X .051) or $9,000 X .00051 =
$4.59 per employee. The variable impact for this example is .000918 - .00051 or
.000408 which results in $9,000 X .000408 or $3.67/employee or $3,670 for 1000
employees
On the opposite end, if this employer had a worst case scenario where its RRF
+BRF is over 5.1%, then the SAF which is capped at .003111 (.051 +.010 X .051)
would have resulted in $9,000 X .003111 or $27.99/employee or $27,990 for 1000
employees.
7. Additional Contributions Factor .65% (.0065) - The Additional Contributions component of
the overall contribution rate is applicable to all (except those subject to newly liable
contribution rates) contributory employers.
8. Interest Tax Factor 1.1% (.011) - The Interest Factor uniformly applies to all (except those
employers subject to newly liable contribution rates) contributory employers and is not subject
to appeal. Payments attributable to this Interest Factor, like employee contributions, are not
credited to an employer's reserve account. Such amounts are not credited to the employer's
experience record for future rate computation purposes. Note: the Interest Factor increased
from .2% in 2012 and then to 1.1% in 2013; it remains at 1.1 %
9. Total Contribution Rate…. The lowest amount any PA employer pays is based on
the minimum fixed rate of 0.02801 times $9,000. ($9,000 X .02801 = $252.09), i.e.,
calculated per employee earning $9,000 or more in the year.
This example shows a UC Contribution rate of 0.036418 which means it is
paying $9,000 X 0.036418 = $327.76 per employee earning = or > $9,000 per
year. The lowest rate any PA employer must pay is .02801, so the variable
portion is the difference between the actual rate and the fixed rate, i.e., in this
example .036418 - .02801 or .008408
To verify the math is correct it can tied-in directly to the variable amounts of
the BBF 0.008 + variable portion of the SAF .000408 which also totals .008408.
If it has 100 impacted employees it paid .008408 X 9000 X 100 or $7,567.20 over
the minimum rate to cover its average annual benefit charges of $12,447.00;
however, and unfortunately, even though the Commonwealth still has
$645,172.00 of its money in a reserve the Commonwealth will neither rebate its
reserve nor any overage in its favor.
Employers should also be aware that even if its “Benefit Ratio & Reserve Ratio Factors” would be 0.000 it won’t
get off with paying $0.00, since, in addition to the above variable components, you pay a fixed amount for the
three factors, and a semi-fixed amount for one factor, resulting in the 2015 minimum rate of 2.801%.
The maximum rate is 10.8937% as long as you aren’t a delinquent payer (this includes the 5.1 percent
surcharge, the 0.65 percent Additional Contribution tax and the 1.1 percent Interest Tax Factor). Don’t forget
that delinquent payers have another 3% added which could result in a top rate of 13.8937%
So, no matter how many employees you have ever laid-off (or not laid-off) each employer paid a minimum (fixed)
amount in 2015 of $9,000 X .02801 = $252.09 per employee who earns $9,000 or more per year.
In this case if the employer had 1000 employees earning = or > $9,000 they would pay in $9,000 X .036418 or
$327.76 per employee related to the variable portion of the UC Rate Calculation ($75.67/employee over the
minimum or $75,670 total)
If you are a worst case scenario employer paying the maximum (with no delinquency) you pay $9,000 X .108937
= $980.43 per impacted employee. That’s a $728.34 delta from low to high, which translates to $72,834 for an
employer with 100 impacted employees.
Note: In 2016 the taxable wage base will increase to $9,500 and in 2017 to $9,750. It continues
increasing through 2018, when it reaches $10,000 and remains at that amount.
You can learn more about UC at: http://www.uc.pa.gov/Documents/UCP%20Forms/ucp-36.pdf
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6. The adjustment factor in this case is .000918 since it is calculated on a basic
rate of 1.8% (.018 X .051=.000918). The impact was $8.26/Employee or $826 for
100 employees. However, even if this employer had a zero “Reserve Ratio
Factor + Benefit Ratio Factor” it would still have to pay the minimum surcharge
rate based on an adjustment factor of .00051 (.01 X .051) or $9,000 X .00051 =
$4.59 per employee. The variable impact for this example is .000918 - .00051 or
.000408 which results in $9,000 X .000408 or $3.67/employee or $3,670 for 1000
employees
On the opposite end, if this employer had a worst case scenario where its RRF
+BRF is over 5.1%, then the SAF which is capped at .003111 (.051 +.010 X .051)
would have resulted in $9,000 X .003111 or $27.99/employee or $27,990 for 1000
employees.
7. Additional Contributions Factor .65% (.0065) - The Additional Contributions component of
the overall contribution rate is applicable to all (except those subject to newly liable
contribution rates) contributory employers.
8. Interest Tax Factor 1.1% (.011) - The Interest Factor uniformly applies to all (except those
employers subject to newly liable contribution rates) contributory employers and is not subject
to appeal. Payments attributable to this Interest Factor, like employee contributions, are not
credited to an employer's reserve account. Such amounts are not credited to the employer's
experience record for future rate computation purposes. Note: the Interest Factor increased
from .2% in 2012 and then to 1.1% in 2013; it remains at 1.1 %
9. Total Contribution Rate…. The lowest amount any PA employer pays is based on
the minimum fixed rate of 0.02801 times $9,000. ($9,000 X .02801 = $252.09), i.e.,
calculated per employee earning $9,000 or more in the year.
This example shows a UC Contribution rate of 0.036418 which means it is
paying $9,000 X 0.036418 = $327.76 per employee earning = or > $9,000 per
year. The lowest rate any PA employer must pay is .02801, so the variable
portion is the difference between the actual rate and the fixed rate, i.e., in this
example .036418 - .02801 or .008408
To verify the math is correct it can tied-in directly to the variable amounts of
the BBF 0.008 + variable portion of the SAF .000408 which also totals .008408.
If it has 100 impacted employees it paid .008408 X 9000 X 100 or $7,567.20 over
the minimum rate to cover its average annual benefit charges of $12,447.00;
however, and unfortunately, even though the Commonwealth still has
$645,172.00 of its money in a reserve the Commonwealth will neither rebate its
reserve nor any overage in its favor.
Employers should also be aware that even if its “Benefit Ratio & Reserve Ratio Factors” would be 0.000 it won’t
get off with paying $0.00, since, in addition to the above variable components, you pay a fixed amount for the
three factors, and a semi-fixed amount for one factor, resulting in the 2015 minimum rate of 2.801%.
The maximum rate is 10.8937% as long as you aren’t a delinquent payer (this includes the 5.1 percent
surcharge, the 0.65 percent Additional Contribution tax and the 1.1 percent Interest Tax Factor). Don’t forget
that delinquent payers have another 3% added which could result in a top rate of 13.8937%
So, no matter how many employees you have ever laid-off (or not laid-off) each employer paid a minimum (fixed)
amount in 2015 of $9,000 X .02801 = $252.09 per employee who earns $9,000 or more per year.
In this case if the employer had 1000 employees earning = or > $9,000 they would pay in $9,000 X .036418 or
$327.76 per employee related to the variable portion of the UC Rate Calculation ($75.67/employee over the
minimum or $75,670 total)
If you are a worst case scenario employer paying the maximum (with no delinquency) you pay $9,000 X .108937
= $980.43 per impacted employee. That’s a $728.34 delta from low to high, which translates to $72,834 for an
employer with 100 impacted employees.
Note: In 2016 the taxable wage base will increase to $9,500 and in 2017 to $9,750. It continues
increasing through 2018, when it reaches $10,000 and remains at that amount.
You can learn more about UC at: http://www.uc.pa.gov/Documents/UCP%20Forms/ucp-36.pdf
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