What is Experience rating?

Experience rating ties an employer's state unemployment-tax rate to how much it has drawn on the unemployment fund. Employers that lay off few workers and generate few claims earn lower rates over time; those with frequent layoffs pay more. The mechanism rewards stable employment and spreads the cost of unemployment toward the businesses that cause it.

Because experience-rated rates take years to develop, new businesses pay the flat new-employer rate first. Over time, a well-run employer can pay less than the new-employer rate, while a high-turnover one can pay considerably more.