How to Legally Lower One Employer Tax

Take a quick glance at this chart. And ask yourself. What is my company paying?

Annual unemployment insurance tax for 50 employees

State

Lowest Rate

Highest Rate

Arizona

$105

$31,185

California

$5,250

$21,700

Colorado

$12,993

$58,987

Florida

$350

$18,900

Illinois

$3,564

$50,220

Indiana

$2,399

$35,502

Iowa

$0

$113,200

New York

$8,694

$50,424

Ohio

$1,350

$39,600

Oklahoma

$875

$48,125

Texas

$2,115

$33,705

With a small effort this tax can be managed to keep you in the lowest bracket saving you thousands of dollars.

Your business pays taxes for the State Unemployment Tax Act (SUTA). When an employee makes a claim, if your company becomes the 'chargeable employer' your required payments will increase.

First, a Few Words About the Basic Math

Unemployment taxes are calculated on "base wages". These are set by your state. Then, each state decides on a "multiplier" as a "percent" of tax applied to those base wages.

For example, in Illinois, the first $12,960 of each employee’s income is the base wage.

This "percentage" multiplier is what you can control and use to lower your taxes. The more unemployment claims former employees successfully make, the higher the multiplier will be for your business.

Continuing our example, in Illinois, the percentage multiplier can vary from .55% to 7.75% multiplied by the $12,960 base wage, whereas in New York, the base wage is $10,700 and the multiplier range is from 1.63% to 9.43%. Just at a glance, you can see how paying a rate based on the lowest multiplier possible can save you thousands of dollars.

For example in 2016:

  • In Illinois you could pay as little as $71 per employee or as much as $1,004 per employee per year (the multiplier ranges from 0.55% to 7.75%).
  • In New York you will pay between $174 and $1,008 per employee per year (01.63% to 9.43%).

Every year in December your company is given a new individual SUI tax rate based on your company's history.

When your tax rate increases, it applies to your entire payroll, not just one employee.

The tax rate changes are based on your claim history. If your firm has a claim awarded to an employee, the rate goes up. The more claims, the higher the rate. Thus, you can keep your company UI tax low by contesting claims that are not valid or made spuriously.

Some former employees may make unemployment insurance claims for which they are ineligible. Fighting those claims is how you keep your rates low.

55% of the time unemployment claim denials are lost by employers due to lack of documentation. The time and money required to fight inauthentic claims cases is more than made up in a lower tax rate.

Simple processes and documentation can eliminate days of court costs and keep your Unemployment Insurance tax rate low.

In order to ensure that the Unemployment Insurance system awards benefits only to the eligible, employers must take care to have historical documents supporting exactly why an employee is laid off or fired. Performance evaluations and corrective notices provide the necessary documentation as long as they are done consistently, fairly and frequently. All of the documents between employer and employee may be used in deciding unemployment benefit eligibility for unemployment claims.

Illinois averages $25,000,000 in unemployment insurance fraud each year. New York averages $57,800,000. Proper documentation is the only way for employers to ensure that these false claims will not cost the employer. Enterprises have team of people to prepare documentation. Small businesses now have JuvodHR software.

Fraud is far from the only issue faced by employers, but it is one of the easiest to fight. Many unemployment benefit amounts are appealed - either the employer or employee believes they have been wronged. In these situations, only written documentation is usable in court.

The employer must provide written documentation of all corrective notices or warnings given to an employee. The documents must be clear and should reference the employee's job description or the company employee manual or handbook.

Written notices need to include:

  • The employee's performance problem or work rule violation. Be sure to include the date(s) when the incident(s) occurred and write up each incident separately.  Refer to an employee’s job description or a company handbook when describing the violation.
  • The action required of the employee to correct the problem. Action needs to be achievable and related to the performance problem. Be as specific as possible.
  • Rules vary by state but the message must be clear: For example: Immediate improvement or correction is necessary. If this problem is not corrected immediately, future disciplinary action may be taken which could include dismissal.
  • A signature from the employee or a witness on the documents is essential.

Check the rules in your state. Each state has clearly identified when an individual would be ineligible to receive unemployment insurance benefits.

Without documentation, each side is left to hearsay. Thus, the employer may also require a lawyer or legal consultant and can anticipate many hours spanning a number of days to be spent fighting and, most likely, losing claims appeals.

The employer can control the State Unemployment Insurance tax. Documentation must exist that illustrates the actions that lead employees to being dismissed. With proper documentation, the employer can ensure that no false or illegitimate claims are granted.

Author Susan Mravca, CEO of JuvodHR, Susan is leading unemployment insurance reform with the Small Business Advocacy Council in Illinois.

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