WHY UNEMPLOYMENT CLAIMS ADMINISTRATION IS IMPORTANT
The Federal and State Unemployment Tax Acts (FUTA & SUTA) subjugate every business, no matter how small or large, to payroll taxes in order fund both State and Federal Unemployment Insurance (UI) programs, and unlike other federal income taxes, FUTA & SUTA taxes are solely the responsibility of the employer. While there are certain tests to determine if a business must pay FUTA tax for employees, most businesses are required to pay 6 percent of the first $7,000 each employee earns in a calendar year.
State unemployment tax rates are much more difficult to determine and are directly related to the termination practices of the company and how scrupulous it is in administering individual unemployment claims. SUTA rates are individually assigned to each employer each year, and every state uses an experience-rating system of some kind to determine an employer’s applicable tax rate for the year. Although these systems vary in how they’re actually administered, they share the goal of assigning lower tax rates to employers who have lower turnover and fewer involuntary terminations and higher rates to employers who have a higher turnover rate and more involuntary separations.
As a business owner, this rating system probably makes you nervous. The concern for the business is twofold: Small businesses organically have higher turnover rates due to various mitigating factors of operating a small business, and they often have fewer resources available to manage the avalanche of transactional administrative burden that comes with UI claims processing. As is true with the vast majority of avoidable expenditures incurred by smaller organizations, once the problem or expense is apparent, it’s typically difficult to identify and fix the root cause.
Don’t worry, there is good news! Working with a Professional Employer Organization (PEO) will not only provide immediate relief from seemingly inescapably high SUTA rates, but will also identify and correct the root causes. This will help ensure that experience ratings become stable and predictable, and avoidable liability is abated.
A PEO’s compliance management program can assist with a wide spectrum of services, including: