Budget & Tax , Economy

Curtis Shelton | May 8, 2020

Don’t hit businesses on UI experience rating

Curtis Shelton

As Oklahoma begins the slow process of reopening, policy solutions for consumers and businesses will be needed to jumpstart the economy. With Oklahoma unemployment reaching record numbers, lawmakers must focus on making hiring easier for businesses. One way would be to suspend any increases to experience rating for businesses paying unemployment insurance (UI) taxes. (Connecticut, for example, has already done this.)

Unemployment Insurance is essentially an employer-sponsored social insurance program. Employers pay a tax based on employees’ wages that has various rate ranges based on the businesses’ “experience rating.” This experience rating is based on the businesses’ layoff history—simply put, more layoffs result in a worse experience rating and a higher UI tax rate. 

Many businesses have had to make the tough decision to lay off employees over the last month—not because of any failures with the businesses, but rather because the government mandated their closure. To then make these businesses pay a higher tax rate would be unfair and make rehiring more difficult by increasing the cost of labor. Making hiring more difficult is the last thing Oklahoma wants as it starts to open and deal with the economic effects of the shutdown.

To protect those currently receiving unemployment benefits, the state could use federal aid money to keep unemployment funds adequately filled. As the experience rating system is a reasonable and well-designed system—particularly Oklahoma’s which was ranked number one in 2019 by the Tax Foundation—this reform should be temporary. Oklahoma does not want to be in a situation where it is underfunding the unemployment insurance program or relying too heavily on the federal money. 

Curtis Shelton Policy Research Fellow

Curtis Shelton

Policy Research Fellow

Curtis Shelton currently serves as a policy research fellow for OCPA with a focus on fiscal policy. Curtis graduated Oklahoma State University in 2016 with a Bachelors of Arts in Finance. Previously, he served as a summer intern at OCPA and spent time as a staff accountant for Sutherland Global Services.

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