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Computation of Rates

The seven factors of an experienced-based tax rate:

Reserve Ratio Factor
Benefit Ratio Factor
State Adjustment Factor
Solvency Measures and the Trigger Mechanism
Surcharge
Additional Contribution Factor
Interest Factor

Reserve Ratio Factor

An employer's reserve ratio is a lifetime measure of the employer's risk with unemployment. The ratio is determined by dividing the balance in the employer's reserve account (i.e., the lifetime unemployment contributions paid by the employer minus the lifetime benefits charged against the employer's account) by the employer's average annual taxable payroll for the last three fiscal (July - June) years. This ratio (percentage) is then cross-referenced to the applicable table in the Law which indicates the employer's reserve ratio factor (See Reserve Ratio Factor Table). The reserve ratio factor is part of the experience rate for covered employers. This factor is determined annually and ranges from 0 percent to 3.2 percent. The employer's reserve ratio factor is identified on the Contribution Rate Notice (Form UC-657).

In determining experience rates, the Pennsylvania UC Law places employers into particular groups for contribution rate adjustment purposes. These groups are based on the length of time that an employer paid contributions.

Group 1:
An employer who paid contributions for at least one quarter during the 12-month period ending on the computation date (June 30), and for one or more of the four completed calendar quarters immediately preceding such 12-month period, qualifies as a Group 1 employer. A Group 1 employer's reserve ratio factor is equal to one-third of the Group 3 rate.

Group 2:
If an employer paid contributions for at least one quarter in each of the two 12-month periods ending on the computation date (June 30), and for one or more of the four completed calendar quarters immediately preceding such two 12-month periods, the employer will be assigned to Group 2. An employer assigned to Group 2 has a reserve ratio factor equal to two-thirds of the Group 3 rate.

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, is classified as a Group 3 employer.

NOTE: An employer who has sufficient employer experience to be classified in Group 3 cannot be classified in either Group 1 or Group 2; nor can an employer who has sufficient employer experience to be classified in Group 2 be classified in Group 1.

Example:

Balance in Reserve Account divided by the Average Annual Taxable Payroll equals Employer Percentage which equals the Reserve Ratio Factor
2,144 ÷ 16,583 = .1292 or 12.92% =
0.2% for Group 1 Employers
0.4% for Group 2 Employers
0.6% for Group 3 Employers

Utilizing the Reserve Ratio Factor Table, in the example given the 12.92 percent translates to a reserve ratio factor of 0.2 percent for a Group 1 employer, 0.4 percent for a Group 2 employer and 0.6 percent for a Group 3 employer.

Reserve Ratio Factor Table - 2017-2019 Rates

Employer's Reserve Account as a Percentage of Taxable Wages
[Employer Percentage]

Reserve Ratio Factor
Group 1
[1/3 of Group 3 Rate]

Reserve Ratio Factor
Group 2
[2/3 of Group 3 Rate]

Reserve Ratio Factor
Group 3

Greater than 25%

0.0% (.000)

0.0% (.000)

0.0% (.000)

Greater than or equal to 21% but less than 25%

0.1% (.001)

0.2% (.002)

0.3% (.003)

Greater than or equal to 18% but less than 21%

0.2% (.002)

0.3% (.003)

0.4% (.004)

Greater than or equal to 15% but less than 18%

0.2% (.002)

0.4% (.004)

0.5% (.005)

Greater than or equal to 12% but less than 15%

0.2% (.002)

0.4% (.004)

0.6% (.006)

Greater than or equal to 9% but less than 12%

0.3% (.003)

0.5% (.005)

0.7% (.007)

Greater than or equal to 7% but less than 9%

0.3% (.003)

0.6% (.006)

0.8% (.008)

Greater than or equal to 5% but less than 7%

0.3% (.003)

0.6% (.006)

0.9% (.009)

Greater than or equal to 3% but less than 5%

0.4% (.004)

0.7% (.007)

1.0% (.010)

Greater than or equal to 1% but less than 3%

0.4% (.004)

0.8% (.008)

1.1% (.011)

Greater than or equal to 0% but less than 1%

0.4% (.004)

0.8% (.008)

1.2% (.012)

 
Less than 0% but greater than -1%

0.5% (.005)

0.9% (.009)

1.3% (.013)

Less than or equal to -1% but greater than -2%

0.5% (.005)

1.0% (.010)

1.4% (.014)

Less than or equal to -2% but greater than -3%

0.5% (.005)

1.0% (.010)

1.5% (.015)

Less than or equal to -3% but greater than -4%

0.6% (.006)

1.1% (.011)

1.6% (.016)

Less than or equal to -4% but greater than -5%

0.6% (.006)

1.2% (.012)

1.7% (.017)

Less than or equal to -5% but greater than -6%

0.6% (.006)

1.2% (.012)

1.8% (.018)

Less than or equal to -6% but greater than -7%

0.7% (.007)

1.3% (.013)

1.9% (.019)

Less than or equal to -7% but greater than -8%

0.7% (.007)

1.4% (.014)

2.0% (.020)

Less than or equal to -8% but greater than -9%

0.7% (.007)

1.4% (.014)

2.1% (.021)

Less than or equal to -9% but greater than -10%

0.8% (.008)

1.5% (.015)

2.2% (.022)

Less than or equal to -10% but greater than -11%

0.8% (.008)

1.6% (.016)

2.3% (.023)

Less than or equal to -11% but greater than -12%

0.8% (.008)

1.6% (.016)

2.4% (.024)

Less than or equal to -12% but greater than -16%

0.9% (.009)

1.7% (.017)

2.5% (.025)

Less than or equal to -16% but greater than -20%

0.9% (.009)

1.8% (.018)

2.6% (.026)

Less than or equal to -20% but greater than -28%

0.9% (.009)

1.8% (.018)

2.7% (.027)

Less than or equal to -28% but greater than -100%

1.0% (.010)

2.0% (.020)

3.0% (.030)

Less than or equal to -100% or lower

1.1% (.011)

2.2% (.022)

3.2% (.032)

Reserve Ratio Factor Table through 2016 Rates

Employer's Reserve Account as a Percentage of Taxable Wages
[Employer Percentage]

Reserve Ratio Factor
Group 1
[1/3 of Group 3 Rate]

Reserve Ratio Factor
Group 2
[2/3 of Group 3 Rate]

Reserve Ratio Factor
Group 3

Greater than 25%

0.0% (.000)

0.0% (.000)

0.0% (.000)

Greater than or equal to 21% but less than 25%

0.1% (.001)

0.2% (.002)

0.3% (.003)

Greater than or equal to 18% but less than 21%

0.2% (.002)

0.3% (.003)

0.4% (.004)

Greater than or equal to 15% but less than 18%

0.2% (.002)

0.4% (.004)

0.5% (.005)

Greater than or equal to 12% but less than 15%

0.2% (.002)

0.4% (.004)

0.6% (.006)

Greater than or equal to 9% but less than 12%

0.3% (.003)

0.5% (.005)

0.7% (.007)

Greater than or equal to 7% but less than 9%

0.3% (.003)

0.6% (.006)

0.8% (.008)

Greater than or equal to 5% but less than 7%

0.3% (.003)

0.6% (.006)

0.9% (.009)

Greater than or equal to 3% but less than 5%

0.4% (.004)

0.7% (.007)

1.0% (.010)

Greater than or equal to 1% but less than 3%

0.4% (.004)

0.8% (.008)

1.1% (.011)

Greater than or equal to 0% but less than 1%

0.4% (.004)

0.8% (.008)

1.2% (.012)

 
Less than 0% but greater than -1%

0.5% (.005)

0.9% (.009)

1.3% (.013)

Less than or equal to -1% but greater than -2%

0.5% (.005)

1.0% (.010)

1.4% (.014)

Less than or equal to -2% but greater than -3%

0.5% (.005)

1.0% (.010)

1.5% (.015)

Less than or equal to -3% but greater than -4%

0.6% (.006)

1.1% (.011)

1.6% (.016)

Less than or equal to -4% but greater than -5%

0.6% (.006)

1.2% (.012)

1.7% (.017)

Less than or equal to -5% but greater than -6%

0.6% (.006)

1.2% (.012)

1.8% (.018)

Less than or equal to -6% but greater than -7%

0.7% (.007)

1.3% (.013)

1.9% (.019)

Less than or equal to -7% but greater than -8%

0.7% (.007)

1.4% (.014)

2.0% (.020)

Less than or equal to -8% but greater than -9%

0.7% (.007)

1.4% (.014)

2.1% (.021)

Less than or equal to -9% but greater than -10%

0.8% (.008)

1.5% (.015)

2.2% (.022)

Less than or equal to -10% but greater than -11%

0.8% (.008)

1.6% (.016)

2.3% (.023)

Less than or equal to -11% but greater than -12%

0.8% (.008)

1.6% (.016)

2.4% (.024)

Less than or equal to -12% but greater than -16%

0.9% (.009)

1.7% (.017)

2.5% (.025)

Less than or equal to -16% but greater than -20%

0.9% (.009)

1.8% (.018)

2.6% (.026)

Less than or equal to -20% or lower

0.9% (.009)

1.8% (.018)

2.7% (.027)

Benefit Ratio Factor

The benefit ratio factor is a short term comparison of the employer's taxable payroll and UC benefits charged. 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 payroll for the last three fiscal years ending on the computation date (June 30). The benefit ratio factor is determined annually and ranges from 0 percent to 5 percent. This factor is identified on the Contribution Rate Notice (Form UC-657).

Example:

Average Annual Benefits Costs divided by the Average Annual Taxable Payroll equals Benefit Ratio Factor
3,794 ÷ 117,488 = .032 or 3.2%

NOTE: Compute to a 10th of a percentage, with fractional parts rounded to the nearest tenth. If the computed factor is greater than 5 percent (.05), then decrease the factor to 5 percent (.05) when adding it to the rate. The true percentage will be shown on the Contribution Rate Notice (Form UC-657).

State Adjustment Factor

The state adjustment 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 factor is determined annually. The state adjustment factor is uniformly applied to all experience rated contributory employers and is not subject to appeal. The state adjustment factor is identified on the Contribution Rate Notice (Form UC-657).

Year

Maximum State Adjustment Factor

2012 and prior

1.5%

2013 through 2016

1.0%

2017

.85%

2018 and subsequent

.75%

Solvency Measures and the Trigger Mechanism

The UC Law contains four solvency measures that "trigger" on or off depending on the balance in the UC Fund. Two of the solvency measures apply to employer contribution rates: the Surcharge and the Additional Contributions. The other solvency measures are employee contributions and a reduction in the amount of weekly benefits payable to each claimant.

The solvency measures trigger on when the "trigger percentage" is less than 250 percent, and trigger off when the trigger percentage is 250 percent or more. The trigger percentage is a measure of the balance in the UC Fund relative to historical benefit costs. The trigger percentage is determined each year through a three step process:

Step 1:
The principal amount of outstanding bonds under Article XIV of the UC Law is added to the principal amount of outstanding federal loans under the Social Security Act, and that sum is subtracted from the balance in the UC Fund.

Step 2:
The average of the benefit costs for the preceding three fiscal years is determined.

Step 3:
The ratio of the amount determined under step 1 to the amount determined under step 2, expressed as a percentage, is the "trigger percentage."

Based on contribution and benefit activity for 2016, the solvency measure rates for calendar years 2018 through 2022 are as follows:

Solvency measure rates with outstanding UC debt

 

Target Amount

Rate

Employer surcharge

$100,000,000

5.4%

Employer additional contributions

$225,000,000

0.5%

Employee tax

$166,666,667

0.06%

Benefit reduction

$52,000,000

2.4%

Solvency measure rates with no outstanding UC debt

 

Target Amount

Rate

Employer surcharge

$138,000,000

7.4%

Employer additional contributions

$310,000,000

0.7%

Employee tax

$230,000,000

0.08%

Benefit reduction

$72,000,000

3.3%

Every five years, the department recalculates the rates so that each solvency measure generates an amount of revenue designated in the UC Law.

Surcharge

The surcharge is converted into an element in the contribution rate by multiplying the employer's Basic Rate by the surcharge percentage. The result of the computation is the "Surcharge Adjustment." The Surcharge Adjustment is identified on the Contribution Rate Notice (Form UC-657).

YEAR

SURCHARGE ADJUSTMENT

2008 - 2012

Positive 5.8%

2013 - 2017

Positive 5.1%

2018 - 2019

Positive 5.4%

Additional Contributions Factor

The additional contributions component of the overall contribution rate is applicable to all (except those subject to newly liable contribution rates) contributory employers. The Additional Contributions factor is identified on the Contribution Rate Notice (Form UC-657).

Year

Additional Contributions

2008 - 2009

0.25%

2010 - 2017

0.65%

2018 - 2019

0.50%

 

Interest Factor

If the Pennsylvania UC Fund is depleted, the commonwealth borrows money from the Federal Government to enable it to continue to pay benefits to unemployed workers. Under federal law, these loans are repaid by a reduction in the FUTA credit available to Pennsylvania employers or by deductions from the UC Fund. Loans from the Federal Government also are subject to annual interest charges. Federal law prohibits the use of state UC Fund moneys to pay the interest charges; therefore, the Interest Factor was added to the Pennsylvania UC Law in 1985 to generate the revenues necessary to make interest payments on federal loans.

As a result of the recent recession, Pennsylvania began to borrow from the federal government in 2009 and continued to borrow through July 2012. Act 60 of 2012 authorized the commonwealth to refinance this outstanding debt through the issuance of bonds in the private market. The principle of the debt to the Federal Government was repaid from the bond proceeds, and the Interest Factor was repurposed to pay the debt service on the bonds.

The Interest Factor uniformly applies to all (except those employers subject to newly liable contribution rates) contributory employers and is not subject to appeal. The Interest Factor is identified on the Contribution Rate Notice (Form UC-657).

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. In addition, the Interest Factor is not considered to be a "contribution" for federal certification purposes under the provisions of the Federal Unemployment Tax Act.

YEAR

Interest Factor

2011

0.44%

2012

0.20%

2013 - 2019

1.1%