Rep. Mark Tedford, R-Tulsa, recently held an interim study examining the impact of state unemployment tax on economic development.

Unemployment benefits, funded through unemployment insurance taxes (SUTA) levied on state employers, provide financial support for employees transitioning between jobs. Despite the essential function of these benefits, Tedford said misconceptions exist regarding how the system operates and who is responsible for funding it.

IS24-103 was held before the House Business and Commerce Committee and studied how Oklahoma collects tax and pays benefits compared to other states and whether this process impacts the state's business environment.

Trae Rahill, Oklahoma Employment Security Commission's (OESC) executive director, compared Oklahoma's unemployment insurance system to neighboring states—Colorado, Arkansas, Missouri, Texas, and Kansas—highlighting key factors like taxable wage base and tax rate. He pointed out that TaxFoundation.org rates Oklahoma's system the best and that it is the only state that has never borrowed from the federal program.

The taxable wage base is the maximum wage employers pay, with Oklahoma being one of 34 states that determine this cap based on economic factors. However, other states may base their caps on different economic indicators. Sixteen states, including four neighboring states, set the caps legislatively.

"The advantage of an economically derived cap is that it will adjust to changing economic conditions," Tedford said. "Oklahoma uses 50% of the average annual wage to determine its cap at $27,000. This means Oklahoma employers pay unemployment tax on the first $27,000 of wages per employee. Unfortunately, most of our surrounding states legislatively set their wage base much lower than Oklahoma. The only other neighboring state that economically derives the wage base, Colorado, is the only state higher than ours."

Tedford said the tax rate employers pay for SUTA is based on the number of unemployment claims made against them over time. A new employer will start with a default tax rate of 1.5% on wages, adjusted based on the employer's experience after four quarters. While Oklahoma's default rate is the lowest in the region, its maximum rate of 9.2% is the highest.

Executive Director of the State Chamber Research Foundation, Ben Lepak, commented that employers seeking to move into or increase their footprint in Oklahoma will look at the total dollar cost of the unemployment insurance burden, certainty of the rate, and ease of compliance. Lepak said several states offer a "buy down" feature that allows them to reduce and stabilize their rates while reimbursing the state for the benefits provided.  

Christy Rawlings, commissioner for the OESC and owner of Prime Recruiting, highlighted that Oklahoma's high taxable wage base created a competitive disadvantage for employers wanting to increase their presence. She also reiterated Lepak's comments that a "buy down" option would greatly help companies looking to expand in Oklahoma to stabilize their unemployment insurance cost. 

"Overall, Oklahoma's unemployment insurance system is well-funded and well-managed," Tedford said. "I intend to work with the OSEC and other stakeholders in the state to implement these recommendations to create a better business environment for employers in Oklahoma without changing benefits for workers in transition."