GLOSSARY

For additional assistance on 

benefits, contact one of our 

information offices:

NATIONAL: WASHINGTON, DC

(202) 691-6199 TDD: (800) 877-8339

NCSinfo@bls.gov www.bls.gov/ebs

REGIONAL:

ATLANTA

(404) 893-4222

BOSTON

(617) 565-2327

CHICAGO

(312) 353-1880

DALLAS

(972) 850-4800

KANSAS CITY

(816) 285-7000

NEW YORK

(646) 264-3600

PHILADELPHIA

(215) 597-3282

SAN FRANCISCO

(415) 625-2270

BUREAU OF LABOR STATISTICS

U.S. DEPARTMENT OF LABOR

Legally required benefits. A grouping 

of benefits that employers typically are 

expected to participate in and contribute toward. The grouping includes 

Social Security, Medicare, federal and 

state unemployment insurance, and 

workers’ compensation. These benefits 

are affected by federal and state laws. 

Payroll tax. A tax an employer or 

employee pays based on the wage or 

salary of the employee. Both federal 

and state governments collect payroll 

taxes.

Taxable earnings. The amount of annual income, up to a maximum amount, 

on which a tax is payable; sometimes is 

called base earnings or covered earnings.

Experience rating. A rating system under which employers are assigned state 

unemployment insurance tax rates in 

accordance with their individual experience with unemployment or with other 

factors, such as seasonal layoffs, that 

bear a direct relation to unemployment 

risk. Generally, the higher an employer’s experience rating, the higher the 

employer’s tax. 

Self-insured coverage. The practice 

by an employer of insuring workers’ 

compensation liabilities by setting aside 

reserve funds that can be used only for 

workers’ compensation claims, rather 

than by purchasing an insurance policy.

WC for private industry employers 

was 41 cents per employee hour 

worked. 

Employer costs by 

occupational and 

industry group

Employer costs for legally 

required benefits vary by 

benefit and by occupational 

and industry group, and are 

highest for Social Security 

both per hour worked and 

as a percentage of total 

compensation. (See table 1.) 

The primary factor determining 

costs for some legally required 

benefits, including Social 

Security and Medicare, is the 

wage rate that an employer pays 

an employee for a particular 

job. Tax rates and insurance 

premiums generally are based 

on salary. Salaries for natural 

resources, construction, and 

maintenance jobs, for example, 

usually are higher than are 

salaries for service jobs. In 

December 2011, the employer 

cost for Social Security was 

$1.46 per employee hour 

worked for natural resources, 

construction, and maintenance 

jobs and 74 cents per employee 

hour worked for service jobs.

Costs also vary because some 

jobs are more prone to layoffs 

than others. For example, the 

relatively high SUI cost for 

construction industry jobs 

(35 cents per employee hour 

worked), compared with financial 

activities jobs (21 cents per 

employee hour worked) is 

due to such factors as laid-off 

construction workers collecting 

unemployment benefits during 

the winter; thus, employers that 

employ construction workers 

may incur higher unemployment 

tax rates. 

Employer costs for workers’ 

compensation vary because 

some occupations are more 

exposed than others to risk of 

injury, to medical liability, and 

to lost time due to accidents. 

These jobs incur higher workers’ 

compensation insurance 

premium rates—construction 

industry jobs, for example, 

compared with jobs in leisure 

and hospitality. In December 

2011, workers’ compensation 

costs were $1.16 per employee 

hour worked for occupations in 

construction, significantly higher 

than the 24 cents for occupations 

in leisure and hospitality.●

from page 3►

The upcoming topic will be featured in Beyond the Numbers: 

“Health Benefits in State and Local Government”

National Compensation Surv

Health Plan Provisions i

and Local Government

United States, 2

www.bls.gov/ebs
2 PROGRAM PERSPECTIVES  •  April 2012 U.S. BUREAU OF LABOR STATISTICS 

from cover page►

55 million Americans received an 

average monthly Social Security 

benefit of $1,125. See “Monthly 

Statistical Snapshot,” in Research, 

Statistics, and Policy Analysis 

(Social Security Online, updated 

monthly), available online at 

http://www.ssa.gov/policy/docs/

quickfacts/stat_snapshot/.

Social Security is financed by 

a payroll tax on workers’ wages, 

with a portion of the tax paid by 

the worker and a portion paid by 

the employer. For 2012, the Social 

Security tax rate for employers 

is 6.2 percent of taxable earnings 

up to $110,100 per employee. In 

2012, employees pay 4.2 percent 

of taxable earnings toward Social 

Security, a temporary reduction 

from the usual 6.2 percent rate. 

In December 2011, the average 

employers’ cost for all private 

industry workers for Social 

Security was $1.34 per employee 

hour worked. (See table 1.)

Medicare is a benefit that 

pays medical care for retirees 

and persons with long-term 

disabilities. The basis for 

Medicare is a 1965 amendment 

to the Social Security Act. 

Medicare reimburses doctors, 

medical clinics, and hospitals for 

providing services to Medicare 

beneficiaries. Medicare is funded 

by both the employee and the 

employer through a payroll tax 

on covered earnings. In 2012, 

the Medicare tax rate paid by 

employees and employers alike is 

1.45 percent of taxable earnings. 

In December 2011, the average 

cost for this benefit to all private 

industry employers was 33 cents 

per employee hour worked. 

Federal Unemployment Tax 

Act (FUTA) also known as 

federal unemployment insurance, 

along with state unemployment 

programs, provides benefits to 

workers who have lost their jobs. 

FUTA covers the federal share 

of the costs of administering 

unemployment insurance and 

job service programs in all 

states. In addition, FUTA pays 

one-half of the cost of extended 

unemployment benefits during 

periods of high unemployment. 

FUTA funds held by the federal 

government are loaned to states, 

when necessary, to help pay 

unemployment benefits. FUTA is 

funded by an employer payroll 

tax: 6.0 percent on individual 

employee wages up to a 

maximum salary of $7,000 a year. 

However, employers that pay 

state unemployment taxes on a 

timely basis typically are eligible 

to receive a credit of 5.4 percent, 

CHART 1

Employer cost for legally required benefits per employee hour worked, by selected occupational 

groups, private industry, December 2011

Source: U.S. Bureau of Labor Statistics.

All workers

Management, professional, and related

Natural resources, construction, and 

maintenance

Production, transportation, and

material moving

Sales and office

Service

Dollars per hour worked

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

2.33

3.46

3.11

2.32

1.80

1.43
2 PROGRAM PERSPECTIVES  •  April 2012 U.S. BUREAU OF LABOR STATISTICS 

from cover page►

55 million Americans received an 

average monthly Social Security 

benefit of $1,125. See “Monthly 

Statistical Snapshot,” in Research, 

Statistics, and Policy Analysis 

(Social Security Online, updated 

monthly), available online at 

http://www.ssa.gov/policy/docs/

quickfacts/stat_snapshot/.

Social Security is financed by 

a payroll tax on workers’ wages, 

with a portion of the tax paid by 

the worker and a portion paid by 

the employer. For 2012, the Social 

Security tax rate for employers 

is 6.2 percent of taxable earnings 

up to $110,100 per employee. In 

2012, employees pay 4.2 percent 

of taxable earnings toward Social 

Security, a temporary reduction 

from the usual 6.2 percent rate. 

In December 2011, the average 

employers’ cost for all private 

industry workers for Social 

Security was $1.34 per employee 

hour worked. (See table 1.)

Medicare is a benefit that 

pays medical care for retirees 

and persons with long-term 

disabilities. The basis for 

Medicare is a 1965 amendment 

to the Social Security Act. 

Medicare reimburses doctors, 

medical clinics, and hospitals for 

providing services to Medicare 

beneficiaries. Medicare is funded 

by both the employee and the 

employer through a payroll tax 

on covered earnings. In 2012, 

the Medicare tax rate paid by 

employees and employers alike is 

1.45 percent of taxable earnings. 

In December 2011, the average 

cost for this benefit to all private 

industry employers was 33 cents 

per employee hour worked. 

Federal Unemployment Tax 

Act (FUTA) also known as 

federal unemployment insurance, 

along with state unemployment 

programs, provides benefits to 

workers who have lost their jobs. 

FUTA covers the federal share 

of the costs of administering 

unemployment insurance and 

job service programs in all 

states. In addition, FUTA pays 

one-half of the cost of extended 

unemployment benefits during 

periods of high unemployment. 

FUTA funds held by the federal 

government are loaned to states, 

when necessary, to help pay 

unemployment benefits. FUTA is 

funded by an employer payroll 

tax: 6.0 percent on individual 

employee wages up to a 

maximum salary of $7,000 a year. 

However, employers that pay 

state unemployment taxes on a 

timely basis typically are eligible 

to receive a credit of 5.4 percent, 

CHART 1

Employer cost for legally required benefits per employee hour worked, by selected occupational 

groups, private industry, December 2011

Source: U.S. Bureau of Labor Statistics.

All workers

Management, professional, and related

Natural resources, construction, and 

maintenance

Production, transportation, and

material moving

Sales and office

Service

Dollars per hour worked

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50

2.33

3.46

3.11

2.32

1.80

1.43
GLOSSARY

For additional assistance on 

benefits, contact one of our 

information offices:

NATIONAL: WASHINGTON, DC

(202) 691-6199 TDD: (800) 877-8339

NCSinfo@bls.gov www.bls.gov/ebs

REGIONAL:

ATLANTA

(404) 893-4222

BOSTON

(617) 565-2327

CHICAGO

(312) 353-1880

DALLAS

(972) 850-4800

KANSAS CITY

(816) 285-7000

NEW YORK

(646) 264-3600

PHILADELPHIA

(215) 597-3282

SAN FRANCISCO

(415) 625-2270

BUREAU OF LABOR STATISTICS

U.S. DEPARTMENT OF LABOR

Legally required benefits. A grouping 

of benefits that employers typically are 

expected to participate in and contribute toward. The grouping includes 

Social Security, Medicare, federal and 

state unemployment insurance, and 

workers’ compensation. These benefits 

are affected by federal and state laws. 

Payroll tax. A tax an employer or 

employee pays based on the wage or 

salary of the employee. Both federal 

and state governments collect payroll 

taxes.

Taxable earnings. The amount of annual income, up to a maximum amount, 

on which a tax is payable; sometimes is 

called base earnings or covered earnings.

Experience rating. A rating system under which employers are assigned state 

unemployment insurance tax rates in 

accordance with their individual experience with unemployment or with other 

factors, such as seasonal layoffs, that 

bear a direct relation to unemployment 

risk. Generally, the higher an employer’s experience rating, the higher the 

employer’s tax. 

Self-insured coverage. The practice 

by an employer of insuring workers’ 

compensation liabilities by setting aside 

reserve funds that can be used only for 

workers’ compensation claims, rather 

than by purchasing an insurance policy.

WC for private industry employers 

was 41 cents per employee hour 

worked. 

Employer costs by 

occupational and 

industry group

Employer costs for legally 

required benefits vary by 

benefit and by occupational 

and industry group, and are 

highest for Social Security 

both per hour worked and 

as a percentage of total 

compensation. (See table 1.) 

The primary factor determining 

costs for some legally required 

benefits, including Social 

Security and Medicare, is the 

wage rate that an employer pays 

an employee for a particular 

job. Tax rates and insurance 

premiums generally are based 

on salary. Salaries for natural 

resources, construction, and 

maintenance jobs, for example, 

usually are higher than are 

salaries for service jobs. In 

December 2011, the employer 

cost for Social Security was 

$1.46 per employee hour 

worked for natural resources, 

construction, and maintenance 

jobs and 74 cents per employee 

hour worked for service jobs.

Costs also vary because some 

jobs are more prone to layoffs 

than others. For example, the 

relatively high SUI cost for 

construction industry jobs 

(35 cents per employee hour 

worked), compared with financial 

activities jobs (21 cents per 

employee hour worked) is 

due to such factors as laid-off 

construction workers collecting 

unemployment benefits during 

the winter; thus, employers that 

employ construction workers 

may incur higher unemployment 

tax rates. 

Employer costs for workers’ 

compensation vary because 

some occupations are more 

exposed than others to risk of 

injury, to medical liability, and 

to lost time due to accidents. 

These jobs incur higher workers’ 

compensation insurance 

premium rates—construction 

industry jobs, for example, 

compared with jobs in leisure 

and hospitality. In December 

2011, workers’ compensation 

costs were $1.16 per employee 

hour worked for occupations in 

construction, significantly higher 

than the 24 cents for occupations 

in leisure and hospitality.●

from page 3►

The upcoming topic will be featured in Beyond the Numbers: 

“Health Benefits in State and Local Government”

National Compensation Surv

Health Plan Provisions i

and Local Government

United States, 2

www.bls.gov/ebs