After my last post, some readers suggested that I was exaggerating the potential cost of paying unemployment insurance when you hire the wrong person. Fred from Florida wrote, “Payroll tax rates that fund unemployment insurance are affected by the company’s history, but it’s not a dollar for dollar payout.” Actually, in Illinois, it’s even worse.
The unemployment insurance tax may be the most confusing and misunderstood tax there is. It is run by the states, and the rules can vary as much as the weather from one state to another.
Here’s how it works in Illinois. The important point for business owners to know is that when the state pays out claims to a company’s former employees, that company’s unemployment tax rate goes up. For each business, the state calculates how many dollars have been paid in compensation over the previous three years and adds on about 48 percent through various calculations. The result is that in Illinois, you end up paying for incremental compensation claims at a rate of $1.48 for every dollar that a former employee collects.
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