It’s time to review what unemployment insurance is costing your organization.
Job growth is up, but employers are hesitant to hire more employees and reluctant to let go of those they have fought so hard to hire in the past few years.
Suppose your organization does plan to lay off employees. In that case, your HR staff and employment attorney must ensure the Workers’ Adjustment and Retraining Notification is sent to the Texas Workforce Commission (TWC).
Approximately 130 WARN notices were filed with the TWC between January 1, 2025, and June 6, 2025. Some were in Midland; the organization lists are from multiple industries, large nonprofits, and multiple locations. The list is an eye-opener. If the TWC file is correct, then the total for multiple organizations is approximately 12,000 people.
Once you lay those employees off, you are saving their salaries and benefits, but there are hidden unemployment costs for your organization. During boom times, I consulted with organizations that blew those unemployment taxes off and others with a great HR leader and understood the costs. Remember, hire carefully.
According to the TWC website, your effective Unemployment Insurance (UI) tax rate is the sum of five components described below. Your effective tax rate multiplied by your taxable wages determines the tax you pay. Your taxable wages are the sum of the wages you pay up to $9,000 per employee per year.
The website to read more about this is https://www.twc.texas.gov/programs/unemployment-tax/your-tax-rates
Here is a quick review of the website.
The first component of your UI Cost is the General Tax Rate (GTR). It reflects your company’s responsibility to repay the benefits paid to former workers. The GTR is the experience-rated portion of your tax. It is based on benefits paid to former business employees and charged to your account, known as “chargebacks.”
Chargebacks are a surprise to employers because they are in the specific lookback timeframe, looking back quarters, and may not have been from a terminated employee; the employee may have gone down the road and then lost their job somewhere else.
The three-year period used to calculate the 2025 tax rate was from the fourth quarter of 2021 to the third quarter of 2024. If you have no chargebacks for the past three years and have reported and paid taxable wages for the same period, your general tax rate is zero (0.00 percent). Each year, TWC calculates the GTR using this formula:
Pay these taxes so your organization is not negatively affected by not reporting and paying.
The second component of your UI tax rate is the Replenishment Tax Rate (RTR), a flat tax paid by all employers. Its purpose is to replenish the Unemployment Compensation Trust Fund for benefits not charged to a specific employer. Each year, TWC calculates the RTR.
The third component of your tax rate is the unemployment Obligation Assessment (OA). The purpose of the OA is to collect amounts needed to pay bond obligations and collect interest due on federal loans to Texas used to pay unemployment benefits.
The OA is the sum of two parts: the Bond Obligation Assessment Rate and the Interest Tax Rate.
The fourth component of your tax rate is the Deficit Tax Rate (DTR). It is added for the next calendar year for each experience-rated employer when the amount of money in the Unemployment Compensation Trust Fund on a tax rate computation date is less than the established minimum level. The 2025 Deficit Tax Ratio is 0.00 percent; therefore, there is no Deficit Tax Rate for 2025.
The fifth component of your tax rate is the Employment and Training Investment Assessment (ETIA). The assessment is imposed on each employer paying contributions. It is a separate assessment of 0.10 percent of wages an employer pays. Money from the evaluation is deposited to the credit of the employment and training investment holding fund. By law, the Replenishment Tax Rate is reduced by the same amount, so there is no increase in your tax rate due to this assessment.
Finally, your Effective Tax Rate for 2025 is the sum of:
- General Tax Rate (GTR)
- Replenishment Tax Rate (RTR)
- Obligation Assessment Rate (OA)
- Deficit Tax Rate (DTR)
- Employment and Training Investment Assessment (ETIA)
The minimum tax rate for 2025 is 0.25 percent.
The maximum tax rate for 2025 is 6.25 percent.
You pay unemployment tax on the first $9,000 each employee earns during the calendar year. Your taxable wages are the sum of the wages you pay up to $9,000 per employee per year.
This is very expensive, and unless you are independent and very few organizations are without investors, be cautious about hiring or firing. Any investor worth their salt will see these taxes on the financial statements.
Michele Harmon
“Your employees are the heart of your organization.” Dr. Michele Harmon is a Human Resource professional, supporting clients in Texas and New Mexico that range in size from five to more than 3,000 employees. Email: micheleharmon1@gmail.com
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