"Elementary my dear Watson. It's simply a case of greater business expenses caused by, among other things, underestimated unemployment insurance costs. Let me explain ...."

Dr. Watson may not be the only one with questions -- or concerns -- about the financial success of relocating or expanding businesses.

In a highly competitive business environment of shaved production costs, tight budgets and narrow profit margins, no growing company can afford to disregard any potential impact on the bottom line.

And while employers on the move can't escape regulated employee costs like unemployment insurance regardless of their destination in the U.S., they can find better deals if they put prospective sites under the magnifying glass.

Let's see what Sherlock Holmes' investigation uncovered.

Fact No. 1: State tax rates vary widely
Moriarty Manufacturing assumed UI premium costs would be similar across the states to what it was currently paying. AC&D Inc., knew better.

A closer look by Moriarty would have revealed that, although the UI program is federally mandated, dual federal and state regulation of the program allows premium costs to vary widely between states.

Fact No. 2: Taxable wage bases also vary widely
After correcting its initial assumption, Moriarty made a quick comparison of average employer tax rates by state. AC&D was much more meticulous.

Moriarty at least knew UI taxes were levied on a wage base rather than each employee's total annual earnings, but failed to note that the minimum wage base required by federal law had been increased by all but 11 states.

Further, 20 of the states have a flexible wage base that is recomputed annually based on state average annual or weekly wages, or the balance in the state's unemployment trust fund.

Fact No. 3: Experience factors matter
Despite Moriarty's best efforts, other facts concerning UI continued to elude the site selection team. AC&D, on the other hand, had already investigated another essential factor.

Moriarty failed to appreciate that state employer contributions are normally based on the amount of wages they have paid, the amount they have contributed to the unemployment fund, and the amount that their discharged employees have been compensated from the fund.

The experience factor used to calculate each individual employer's tax rate, or unemployment experience rating, will fall somewhere between the minimum and maximum rates in each state. Average tax rates are only that -- average.

Some employers will pay more than their experience rating would require based on a state minimum UI premium, while others will have premiums capped at a state maximum even if their business practices result in substantial unemployment.

Fact No. 4: New employer tax rates may add to start-up costs
Moriarty was finally gaining an appreciation of experience factors, but AC&D had already compared new employer tax rates and qualifying periods.

Moriarty had yet to realize what happens before the company qualifies for a UI experience rating.

In all but 12 states the new employer tax rate is at least equal to, and usually greater, than the average tax rate. That means higher UI premiums in many states than might otherwise be expected.

Moriarty was clueless that states require anywhere from 12 to 36 months, in some cases more, to qualify for an experience rating. And based on its planned start-up date, Moriarty wouldn't be eligible for an experience computation at the next scheduled computation date, thereby adding a complete computational cycle to its waiting period. This wait would cost Moriarty at least another year of paying UI taxes at the new employer rate.

"So you see my dear Watson, Moriarty Manufacturing Co. was destined to pay more in total employee compensation costs than AC&D Inc., and therefore be less financially competitive after its relocation. For AC&D Inc., unemployment insurance rates and cost estimates were, well, elementary."

Les Gramkow is research editor for Expansion Management Magazine.