paying a certain rate based on past claims against them.
You are correct, except it isn't number of
claims, it is number
collecting. "Your state unemployment tax rate depends on how much your former workers
collect in unemployment benefits."
"There are two major components of state unemployment taxes, an experience-rated tax based on an average of the employer's layoff history over the past four fiscal years and a shared-cost (social) tax based on costs from the previous year that can't be attributed to a specific employer. "
Every quarter, the states evaluates what your companies tax rate is based on what was paid out that quarter. If the workers are still
collecting unemployment, your tax goes up. So if 4000 workers
claim for a week, no big deal. If 4000 workers
collect for 6 months, its a big deal.
For example, in Massachusetts, the rate can be as low as 1.26% if you never ever ever had a claim against your company, and as high as 12.27% if you have 4000 temp workers that get laid off every half of the year. A new company with no history starts at 2.83%.
So, 11% delta is a lot. That is 2x the typical profit of 5.5%.
Lets say you have 4000 workers, that make $30 an hours, 60 hours a week for 12 weeks. Your payroll not counting tax's and insurance etc is $86.4M. At 1.26%, you would pay $1M tax on that. At 12.27%, you would pay $10.6M tax. So, your rate can be 10x higher with more people
collecting unemployment.
Did I explain it well?