Employers Relocating to Tennessee May Transfer Prior SUI Experience Rate

Author: Rena Pirsos, XpertHR Legal Editor

June 3, 2014

Under an amended law (2013 Bill Text TN H.B. 1386), certain employers that relocate their business to Tennessee on or after July 1, 2014 will be able to elect to transfer their previous state unemployment insurance (SUI) experience rating rather than be assigned the Tennessee new employer rate.

The new option applies to employers that have been in operation for at least the three years immediately before the relocation to Tennessee. An eligible relocating employer must provide the Tennessee Department of Labor and Workforce Development (DLWD) with an authenticated account history from the previous state. This will enable the DLWD to compute a Tennessee experience rate for the employer that factors in the employer's prior experience rating.

However, if Tennessee's unemployment trust fund balance is equal to, or lower than, $700 million or would result in the state losing federal UI funding, the DOL is authorized to suspend use of this new option.

An employer's SUI premium rate depends on whether the employer is a new employer, or an experience-rated employer. A new employer in Tennessee must initially pay the new employer rate - 2.7 percent in 2014 for most industries - until its account has been subject to premiums and chargeable with benefits for 36 consecutive months ending on the computation date (December 31 of each year). At that point, the employer is considered experience-rated and, beginning on the next July 1, the employer becomes eligible for a premium rate. An experience-rated employer's premium rate is determined by two factors: (1) the employer's reserve ratio and (2) the level of the state UI trust fund.

The DOL determines an employer's reserve ratio by subtracting from the total premiums the employer has paid as of December 31 all benefits charged against the employer as of December 31. The difference is then divided by the employer's average payroll for the last three calendar years. The resulting percentage is the employer's reserve ratio. The employer's premium rate is the rate that corresponds with this reserve ratio on the premium table in effect. The level of the trust fund determines which of six premium tables will be in effect for the year and used to determine the employer's premium rate.