How Unemployment Benefits Affect Employers

Posted by: Dec 23, 2014By Brian Stutheit

This is not a question with a simple answer.  The Colorado Department of Labor sets basic rates (percentages of payroll) which it charges employers.  These basic rates depend in large part on what industry the employer is in.  I will call these rates “premiums” because they are in essence premiums for unemployment insurance.  Non-construction employers pay lower premiums than employers in general construction.  Employers classified as “heavy construction” pay the highest standard premiums.

After unemployment benefits are paid to ex-employees, the Department of Labor adjusts the rates using this formula:

(Premiums Paid – Benefits Charged) / Average Annual Payroll = Percent of Excess

The Percent of Excess determines how much the basic rate is changed.

  • With a higher Percent of Excess, the amount the employer must pay goes lower.
  • With a lower Percent of Excess (including negative excess), the rate assigned goes up.

The higher the unemployment benefits paid out, the lower the Percent of Excess premiums, so the employer will be charged more in the future.

Employers with higher average payroll will not be as significantly affected by a single benefit claim as a small employer will be.  It would not be unusual for a small employer who pays $4,000 in unemployment benefits to see its future premiums go up by 1 percent, or more.