With Unemployment on the Rise, Strategic UI Tax Management Matters More Than Ever

A professional executive speaking in a board room setting discussing rising unemployment costs

A Surge in Layoffs Signals Mounting Risk

March’s labor data offers a mixed but cautionary picture for employers. The unemployment rate increased 0.1% to 4.2%, continuing an upward trend that signals softening in the job market. At the same time, total non-farm payroll employment increased by 228,000 jobs, driven by gains in health care, transportation and warehousing, and retail trade.

Despite the growth, deeper trends are a cause for concern. The number of long-term unemployed held steady at 1.5 million, representing 21.3% of all unemployed individuals. Employers remain wary, navigating rising costs, policy shifts, and global economic uncertainty.

This caution showed in March’s job cut announcements, with employers announcing 275,240 layoffs, according to Challenger, Gray & Christmas—a 60% jump over February and a 205% spike from March 2024. “It’s hard to see this as anything but a very strong headwind in an already shaky labor market,” said Senior Vice President Andrew Challenger. It was the third-highest monthly total ever recorded. The vast majority of these cuts were tied to actions from the Department of Government Efficiency (DOGE), which announced 216,670 reductions across 27 federal agencies.

Warning Signs in an Unsettled Landscape

While the BLS reports that federal government employment declined by 4,000 in March, it is important to note that these figures may not fully reflect all announced layoffs due to survey methodology—employees on paid leave or severance may still be counted as employed.

Meanwhile, data shows that hiring plans have dropped sharply, with March figures marking a significant year-over-year decline and the lowest Q1 hiring total since 2012. Many employers appear to be holding back, awaiting greater clarity around the economy’s trajectory.

Gaining Control of your Experience Rating as a Strategic Line of Defense

In an unpredictable economy, layoffs or involuntary separations may not be an option but a necessity for some businesses. Managing and controlling a company’s experience rating- the key driver of a business’ State Unemployment Tax Act (SUTA) rate, becomes an even more important line of defense. Even modest differences in experience ratings can lead to dramatic disparities in tax liabilities.

Take this example: In Idaho where the annual taxable wage base is $55,300 with a minimum state unemployment tax rate (SUTA) of 0.23% and a maximum rate of 5.4%, an employer with 1,500 employees could pay $190,785 annually in state unemployment taxes if at the most favorable 0.23% experience rating. However, if the company’s experience rating was not strategically managed and at the higher end of Idaho’s SUTA rate of 5.4%, the unemployment tax liability would rise to $4,479,300, a tremendous difference of $4,288,515 annually in avoidable taxes.

Reframing Unemployment Claims as a Strategic Function

As economic indicators flash warning signs, companies are increasingly treating unemployment claims management and tax optimization as a strategic lever—rather than a necessary ‘cost of doing business’ and an administrative task.

Forward-thinking companies are:

Benchmarking their SUTA tax rates against industry averages in each operating jurisdiction to understand where their tax rates stand among others.
Implementing structured internal processes to improve documentation and response timeliness to UI claims
Leveraging analytics to anticipate future tax rate changes and inform cost-saving initiatives.
Evaluating third-party partnerships that provide deeper expertise, stronger claim responses, and improved outcomes.

By taking a strategic, proactive and data-informed approach to unemployment claims and tax management, organizations can better protect themselves from unpredictable labor market swings and reduce exposure to unnecessary unemployment tax liabilities by taking control through a defensive stance vs reactive approach.

Now is the Time

Uncertainty may persist, but inaction is the costliest choice. Strategic unemployment tax optimization is a tangible, data-driven way to improve financial resilience, redirect capital toward growth, and stay ahead of changing market dynamics. We provide a free online calculator to help companies understand their current unemployment tax position and to estimate their potential unemployment tax cost savings.