Iowa’s unemployment statute has a complex funding provision that appears in part to have some actuarial basis. The statute has a matrix of eight different rate tables, and for each rate table, there are 21 different steps upon which employers may be placed.
The particular rate table which is in effect for any given calendar year is computed in September of the preceding year based upon the projected “health” of the unemployment trust fund. The statutory formula looks primarily at the trust fund balance, unemployment benefit payment history and covered wage growth in the state. The formula is designed to enable the trust fund to keep pace with potential liabilities as covered unemployment and wages grow. The “healthier” the fund (that is, the higher the amount in the trust fund available to pay benefits compared to benefits that have been paid), the higher (higher numbers have lower rates) the tax table. The difference can be striking. For example, an employer who is ranked at Step 10 would pay 0.3% on taxable wages if Table 8 were in effect. That same employer would pay 2.1% if Table 1 were in effect. An employer at Step 11 would also pay 0.3% if Table 8 were in effect, but the rate would jump to 2.5% on Table 1. In September 2019, Iowa Workforce Development announced that the rate table for calendar 2020 would be Table 7 – the same relatively low rate table that has been in effect since calendar year 2018.
If an employer is new to the system, its tax rate is fixed by law until the employer has sufficient time in the system to permit some predictability on claims. In 2020, the ratefor a new non-construction employer is 1.0% and for construction employers it is 7.5%. An employer’s placement on the 21 steps is also determined on an annual basis, based on a particular employer’s “benefit ratio.” Oversimplistically, this is the quotient when the benefits charged to an employer’s account are divided by the employer’s average annual taxable payroll – with the result taken out to six decimal places. All employers in the state are then listed by benefit ratio and divided into 21 groups so that each group contains approximately 4.76% of the statewide total taxable wages.
The same section of the Iowa Code which creates this tax system also has provisions explaining what employer’s account is to be charged with the benefits paid to claimants – including detailing a number of instances where no particular employer’s account is to be charged.
This is indeed a complex system, but one which has served the State of Iowa well through a number of periods of high unemployment. In late 2019 and early 2020, Iowa had been experiencing one of the lowest periods of unemployment in decades. That changed with the COVID-19 pandemic and various responses taken by the Governor – e.g., temporarily closing schools statewide; mandating that certain businesses cease normal public operations – as well as by businesses themselves temporarily ceasing operations.
Iowa Workforce Development initially announced – informally, through responses to questions and answers  as well as by general statements on a webpage  dated March 16, 2020 available here and here that no employers’ account would be charged for benefits paid to employees who were unemployed as a direct result of COVID-19. IWD announced that it would not be conducting fact-finding interviews for such claims.
According to IWD itself, on April 9, 2020, the agency “modified” its “no charge to employer accounts” position – through an update to its COVID-19 webpage:
Attention Employers: At this time, IWD is not charging employers for claims made by their employees due to Covid 19 related unemployment. We have established a trigger for the balance of the Unemployment Insurance Trust Fund at which point, it will be necessary to begin to charge employers accounts for respective unemployment claims. We have established the trigger at $950M and the trust fund balance is currently at $1.10B or $180 million dollars over that trigger of $950 million. This decision was made to assist with our recovery by minimizing any increases they may face in the unemployment tax rate which is based in large part on the trust fund balance. CARES Act claims for the self-employed and the $600 weekly benefit will not be paid from the trust fund.
(Update - April 9, 2020)
The statement about minimizing increases strikes one as a bit simplistic. The basic unemployment benefits are going to be paid out – and it is reasonable to believe Iowa in 2021 is going to a tax table with much higher rates for virtually all employers. For an employer which has not historically had high benefits charged against its account, the fact that the state is contemplating such charges may mean an individual employer’s benefit ratio is going to change dramatically for the worse – and thus that employer’s relative ranking will change for the worse. For those employers, there may be the double whammy of a rate table with higher taxes for all employers combined with a “higher” step number, and thus a higher rate of tax than would be the case if the only change had been the tax table.
In many situations flowing from the COVID-19 pandemic, the unemployment is truly not the fault of the employee. Providing compensation in that situation is, after all, the purpose of unemployment compensation in the first instance. That said, Iowa employers need to be vigilant both in monitoring claims for unemployment and in monitoring the actions of IWD. The passage of the CARES Act may provide funds to the states for various “extra” unemployment benefits provided by that federal law. However, it remains the obligation of the several states to pay the basic unemployment benefits called for by that state’s – including the State of Iowa’s – laws.
 “Question 6: I am an employer that needs to temporarily suspend operations or reduce hours for my employees to prevent the spread of the COVID-19. Would I be responsible for benefit charges for my employees who file unemployment? Answer: No. Iowa Workforce Development will take the appropriate actions to waive the charges for those employers who are forced to do layoffs or reduce work hours for employees due to the COVID-19.”
 “Claims that are filed and identified as a direct or indirect result of COVID-19, will not be charged to employers. Fact-finding interviews for these claims will not be held although employers will be notified of claims received.”