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Unemployment Claims Liability in the Oil and Gas Industry

UC Advantage Oil & Gas

Probationary Periods are often Overlooked.

The turnover rate for labor in the oil and gas industry can vary widely depending on a number of different factors, such as the size and type of employer, the job position, and the region or country.  However, according to some studies, the average turnover rate for workers in the oil and gas industry is around 12%.  This can be attributed to factors such as competition for talent, skilled worker shortages, and the physical demands of the work itself.  At UC Advantage we work with our oil and gas clients to create strategies specifically to reduce the high cost of unemployment claims liability associated with turnover within this labor sector.  

Implementation and the use of introductory or probationary periods.

One such strategy is the implementation and use of introductory or probationary period(s) with periodic reviews of employee performance.  In terms of unemployment claims liability, state unemployment agencies are required to use the earnings in a claimant’s “base period” to determine the potential cost to the employer as a result of an eligible claim.  The base period is defined as the first four of the last five completed business quarters, with the fifth quarter closest to the date in which a claim is filed being defined as the lag quarter.  When an unemployment claim is filed the business quarter in which the claim is filed is considered the employees “last” quarter.  Implementation of an introductory period of 90 days, with periodic 30-day reviews enables both the employer and employee to quantify the expectations of the job and the degree in which those expectation are being met.  At the 90-day mark, if a separation of employment is needed, the wages in the last quarter (filing quarter), and the previously completed calendar quarter (lag quarter) will not be used in the calculation of the unemployment claim.  Technically the claim is worth $0 to the employers’ experience rated UI account, also known as SUI, SUTA, or payroll tax rate.  The claim will be awarded to the claimant due to inability rather than willful, intentional misconduct associated with the work.  The liability for the claim will fall on the employers whose wages were paid to the claimant during the base period of employment.  For the last employer to be charged on the claim, the wages from the last quarter and lag quarter will would need to be recalculated and considered in the filing of a new claim against a new employer six months into the claimants’ future employment.

How does this effect payroll taxes?

Unemployment claims themselves do not drive a payroll tax rate increase; the charges associated with the claims are the driving factor.  To ensure small value claims within an industry that has turnover rates similar to the oil and gas industry, the introduction of a probationary period should be considered.  For additional workforce statistics relating to employment in oil and gas extraction, visit the U.S. Bureau of Labor and Statistics.

For further discussion on this strategy as well as other best practices related to unemployment claims management, please feel free to contact us for additional information.     

Jason E. Hynek

CEO, UC Advantage, Inc.

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