The California Unemployment Insurance Tax

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Employers take care of the costs of saving money for a day a worker does not have a job. Unemployment insurance tax payments are in their payroll budget.

Unemployment compensation payments are not simply given out using the government's dime. Someone has to pay the California government the money for the unemployment insurance that guarantees an income to workers who lost their job for a reason that was not their fault.

That someone is their employer.

The Payroll Tax

Employers that pay their workers owe the unemployment tax. It is one of the main payroll taxes. And one of the costs of employing a Californian to do the business' work. The more workers they add to the payroll, the more they pay.

Not one penny comes out of the worker's paycheck. They are paid the amount they agreed to when they signed their employment contract. The employer sets the unemployment insurance money aside for each employee in their financial plan.

How Much Is Enough?

The tax is paid on the first $7,000 in wages paid to a worker in a calendar year. The unemployment insurance started by the Social Security Act and run by the U. S. Department of Labor was meant to cover the basic living costs for workers that lost their income when an employer lets them go. Each year, the California Employment Development Department (EDD) chooses one of seven tax schedules, AA-F, and sets the rate.

New employers start at the minimum wage percentage rate. The percentage can increase to make sure the employer covers the costs of supporting their own employees. No employer pays more than the maximum rate.

Keeping The Tax Low

The best employers do not carry the larger burden for unemployment insurance. By handling their employees, and their payroll tax, well, they keep their tax rate low. The EDD uses the employer's experience rating to set the rate. When experience with the employer proves they keep their employees secure on the job, they pay a lower rate.

The EDD lets an employer pay a low amount when their review shows that few employees to none leave the business without an income earning job. Consistently giving exit interviews to workers that do leave the business to learn what makes them want to leave so the employer can make the changes needed to keep their workers and not lose any opportunities to avoid an unemployment situation makes an employer stand out. Making insurance payments on time also keeps the rate low.

Money In Store

Employers shoulder the burden for their workers costs of losing their job and having to pay for the costs of living. They give the state a small amount of their payroll money to make sure no employee laid off or fired without cause is forgotten, and they will have money.


California Employment Development Department, California Employers Guide 2011 (Internet, January 2011).