From staff reports OKLAHOMA CITY – The impact of state unemployment tax on economic development was a recent topic of discussion at the Capitol during the Legislature’s slate of interim studies.
Unemployment benefits, funded through unemployment insurance taxes (SUTA) levied on state employers, provide financial support for employees transitioning between jobs. Despite the essential function of these benefits, Rep. Mark Tedford (R-Tulsa) said misconceptions exist regarding how the system operates and who is responsible for funding it.
Tedford held the study before the House Business and Commerce Committee and reviewed how Oklahoma collects tax and pays benefits compared to other states. Also taken into consideration was whether the process impacts the state’s business environment.
Oklahoma Employment Security Commission Executive Director Trae Rahill pointed out to the committee that TaxFoundation.org rates Oklahoma’s system the best and that it is the only state that has never borrowed from the federal program. He also compared Oklahoma’s unemployment insurance system to the neighboring states of Colorado, Arkansas, Missouri, Texas and Kansas. Rahill highlighted key factors like taxable wage base and tax rate.
The taxable wage base is the maximum wage employers pay, said a legislative press release. Oklahoma is one of 34 states that determine the cap based on economic factors. Other states base their caps on different economic indicators, including 16 states (four neighboring) that set the caps legislatively.
“The advantage of an economically derived cap is that it will adjust to changing economic conditions,” Tedford said. “Oklahoma uses 50% of the average annual wage to determine its cap at $27,000. This means Oklahoma employers pay unemployment tax on the first $27,000 of wages per employee. Unfortunately, most of our surrounding states legislatively set their wage base much lower than Oklahoma. The only other neighboring state that economically derives the wage base, Colorado, is the only state higher than ours.”
He also said the tax rate employers pay for SUTA is based on the number of unemployment claims made against them over time. A new employer will start with a default tax rate of 1.5% on wages adjusted based on the employer's experience after four quarters. While Oklahoma's default rate is the lowest in the region, its maximum rate of 9.2% is the highest.
In regards to how this impacts business, Executive Director of the State Chamber Research Foundation Ben Lepak said that employers seeking to move into or increase their footprint in Oklahoma will look at the total dollar cost of the unemployment insurance burden, certainty of the rate and ease of compliance. Lepak said several states offer a 'buy down' feature that allows them to reduce and stabilize their rates while reimbursing the state for the benefits provided.
Christy Rawlings, commissioner for the OESC and owner of The Prime Group, a Tulsa-based national employment recruiter, believes that Oklahoma's high taxable wage base creates a competitive disadvantage for employers wanting to increase their presence. She also reiterated Lepak's comments that a 'buy down' option would greatly help companies looking to expand in Oklahoma to stabilize their unemployment insurance cost.
“Overall, Oklahoma's unemployment insurance system is well-funded and well-managed,' Tedford said. 'I intend to work with the OSEC and other stakeholders in the state to implement these recommendations to create a better business environment for employers in Oklahoma without changing benefits for workers in transition.”