CPS Risk Assessment & Underwriting 3 — Questions and Answers
Question 1: A state unemployment insurance (SUI) experience rate for an employer is primarily determined by:
- Total wages paid in the current year
- The ratio of benefits charged to the employer's account versus taxable wages (Correct answer)
- The number of employees terminated for cause
- Federal unemployment tax deposits
Correct answer: The ratio of benefits charged to the employer's account versus taxable wages
SUI experience ratings compare benefits charged to an employer's reserve account against their taxable payroll to calculate their individual tax rate.
Question 2: Which action best reduces an employer's long-term state unemployment insurance (SUI) tax rate risk?
- Delaying the payment of SUI taxes to preserve cash flow
- Consistently contesting all unemployment claims, even valid ones
- Maintaining thorough termination documentation to contest unwarranted claims (Correct answer)
- Capping employee wages at the SUI taxable wage base
Correct answer: Maintaining thorough termination documentation to contest unwarranted claims
Properly documented terminations for cause allow employers to successfully protest unwarranted UI claims, keeping their reserve account from being charged.
Question 3: What is the consequence of an employer failing to respond to a state unemployment agency's Request for Separation Information within the required timeframe?
- The claim is automatically denied
- Benefits are paid and the employer's account is charged without opportunity to protest (Correct answer)
- The employer receives a civil penalty only
- The case is referred to the DOL for investigation
Correct answer: Benefits are paid and the employer's account is charged without opportunity to protest
Non-response is treated as non-contesting, so benefits are awarded and the charge is applied to the employer's SUI account, raising future rates.
Question 4: An employer's SUI reserve balance turns negative. What immediate risk does this create?
- The employer is exempt from further UI taxes until the balance is restored
- The employer may be assessed at the maximum state UI tax rate (Correct answer)
- Federal FUTA credit is increased to offset the deficit
- The state assumes full liability for outstanding claims
Correct answer: The employer may be assessed at the maximum state UI tax rate
Negative reserve balance (benefit charges exceeding contributions) typically results in the employer being moved to the highest possible state UI tax rate.
Question 5: Which payment strategy can an employer use to voluntarily improve their SUI reserve balance and potentially lower future tax rates?
- Filing amended 940 returns
- Making voluntary contributions to the state UI trust fund (Correct answer)
- Prepaying FUTA taxes to the IRS
- Deferring employee wages to reduce taxable payroll
Correct answer: Making voluntary contributions to the state UI trust fund
Many states allow voluntary contributions to an employer's UI reserve account to improve the reserve ratio and qualify for a lower experience-rated tax rate.
Question 6: Under FUTA, which condition causes an employer to lose the standard 5.4% credit against the 6.0% gross FUTA rate?
- Paying SUI taxes late at the federal level
- The employer's state having an outstanding federal loan to its UI trust fund (credit reduction state) (Correct answer)
- Having more than 50 employees subject to FUTA
- Filing Form 940 after the January 31 deadline
Correct answer: The employer's state having an outstanding federal loan to its UI trust fund (credit reduction state)
States that have borrowed from the federal UI trust fund and not repaid become credit reduction states, reducing the FUTA credit available to employers in those states.
Question 7: A payroll specialist is assessing risk from misclassifying employees as independent contractors. Which SUI-related consequence is most significant?
- Loss of FUTA small employer exemption
- Retroactive SUI tax liability, interest, and penalties for all open tax years (Correct answer)
- Mandatory enrollment in the state's SUI voluntary election program
- Forfeiture of the new employer SUI rate for five years
Correct answer: Retroactive SUI tax liability, interest, and penalties for all open tax years
Reclassification of workers as employees exposes the employer to back SUI taxes, interest, and penalties for each year within the statute of limitations.
CPS Risk Assessment & Underwriting 3
A state unemployment insurance (SUI) experience rate for an employer is primarily determined by: