Reserve Ratio Formula
An employer's reserve ratio is the balance in his state unemployment insurance account (total contributions less total benefits paid) divided by his payroll. The account balance is usually cumulative from the date the employer became subject to the state law; payroll is usually a three-year average annual taxable payroll.
Unemployment insurance contribution rates are then assigned according to a schedule of rates for specified ranges of reserve ratios. A higher reserve ratio generally indicates a lower contribution rate.
In most states using this formula, the schedule of contribution rates varies depending upon the total balance in the state's fund. Employers may therefore benefit from or be penalized by general conditions within the state.
