Delaware employers are assigned one of four different types of tax rates: the new employer rate, the delinquent rate, the earned rate and the transfer of experience rate.
New Employer Rate
'New Employer' means an employing unit that does not qualify for an earned rate. The tax rate for a new employer will be the average of the rates for all employers in the State during the last 12 months. Construction companies will be assigned a tax rate that is the average of the rates for all construction employers in Delaware during the year for which the rate is assigned.
- If any liable employer fails to file its quarterly tax and wage reports due, the employer is assigned the Penalty rate if the delinquency is from the second quarter of the previous year and prior.
- Please note- A delinquent rate reduction can only be made effective in the year and quarter the delinquency is resolved in.
The earned rate is calculated by using the three most recent experience years; the experience year starts from July 1 to June 30. The basic rate is determined by finding the ratio between the benefits charged to your account and the taxable wages that you reported in three experienced years prior to the computation date ( benefits charged/taxable wages = benefit ratio). The ratio is then used in conjunction with the State Experience Factor Tables in Title 19 § 3350 (5) to determine the basic tax assessment rate for the current calendar year.
In addition, the supplemental assessment rate of .02% which is based on the balance in the UI Trust Fund, will be added to determine the final tax assessment rate for the current calendar year.
Transfer of Experience Rate
Frequently, an employer will acquire a business from a previous owner or the employer will reorganize a business. All Employer 'Merit Rate Notices' are issued in January for tax year January 1 through December 31. The effect of various transactions on the employer's contribution rate are summarized below:
- Reorganizations - This is when a new employing unit is formed. The assets, employees, and business or trade are the same under the new organization as they were under the old. The new organization retains the contribution rate and has the same liabilities as before the changeover.
- Successorship - If an existing employing unit acquires the assets, business, organization, or trade of another employing unit, the acquiring employing unit is known as a successor employer.
- An employing unit transferring by sale or otherwise, all or part of the organization, trade, business, or assets to another employing unit or employing units is known as a predecessor employer.
- Commencing January 1 after the transfer, the successor's rate of contributions for each calendar year is based on its experience with payrolls and benefit charges combined with the experience with payrolls and benefit charges of the predecessor. The successor is liable for all contributions, interest and penalties owed by the predecessor employer at the time of the transfer.
- A person who is not an employing unit at the time of acquisition of a business, trade, or organization whether in full or in part will be assigned a new account rate.
- A person who is not an employing unit at the time of transfer of a business, trade, or organization and is substantially the same ownership, will be given the experience rate of the previous business, trade, or organization. For example, in a partnership when one partner buys out another partner and the remaining partner retains the majority interest in the previous business.
Note: Pursuant to legislative change regarding the transfer of experience rate, the following will be effective January 1, 2006:
- If an employer transfers its trade or business, or a portion thereof, to another employer and, at the time of the transfer, there is any common ownership, management or control of the two employers, then the unemployment experience attributable to the transferred trade or business shall be transferred to the employer to whom such business is so transferred. The rates of both employers shall be recalculated and made effective immediately upon the date of the transfer of trade or business.
- Whenever a person who is not an employer under Delaware's Unemployment Insurance Law at the time the trade or business of an employer is acquired, the unemployment experience of the acquired business shall not be transferred to such person if the division finds that such person acquired the business solely or primarily for the purpose of obtaining a lower rate of contributions. Instead, such person shall be assigned the applicable new employer rate under §3348 of Delaware's Unemployment Insurance Law. In determining whether the business was acquired solely or primarily for the purpose of obtaining a lower rate of contributions, the division shall use objective factors which may include the cost of acquiring the business, whether the person continued the business enterprise of the acquired business, how long such business enterprise was continued, or whether new employees were hired for performance of duties unrelated to the business activity conducted prior to acquisition.
For additional information regarding employer tax rates, call the Unemployment Insurance Employer Contributions Unit at (302) 761-8484.