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6 ways you can cut state unemployment tax

by on
in Firing,Human Resources

A new law enacted late last year extends the “temporary” FUTA surtax for 18 more months. This 0.2% surtax, which was initially enacted in 1976, previously had been extended through 2009 by the Emergency Economic Stabilization Act of 2008. Now it’s set to expire on July 1, 2011. 

Undoubtedly, we haven’t seen the last FUTA surtax extension from Congress. For the near future, figure the total unemployment tax will remain 6.2% on the first $7,000 of wages.

Take matters into your own hands. With a few smart moves, you can lower your state unemployment tax rate. This will save you money over the long run—whether or not the federal surtax is extended again and again.

Employers that pay state unemployment tax on time are entitled to a 5.4% credit offset, reducing the federal tax rate to 0.8%. The state unemployment tax rate is based on experience, so frequent layoffs and firings can result in a higher rate.

Each state sets its own wage base, which has been steadily growing in some states.

Here are six ways to keep unemployment tax costs under control:

1. Document poor work performance. If you want to contest an unemployment claim, you will need proof of the employee’s unsatisfactory work or misconduct.

2. Verify each statement of benefits charged to your account. Promptly answer requests for information to avoid unnecessary benefit charges. Follow up to ensure that corrections are made and penalties are not assessed. Appeal unfavorable decisions as soon as possible.

3. Expand slowly. If you cross state borders, do it with a small staff. Don’t add to the payroll until you’ve established a low claims rate.

4. Organize a separate corporation for seasonal workers. That way, you won’t have to pay a higher seasonal rate for your entire staff.

5. File jointly. If your company has affiliates or subsidiaries, they probably have different turnover rates. If you calculate your liability collectively, you might end up with a net savings.

6. Make voluntary contributions to your reserve account. How it works: Your unemployment tax rate depends, in part, on your reserve balance (i.e., amount of tax paid less unemployment claims). A voluntary contribution to your reserve could result in a lower tax rate.

Do this only if the savings exceed the amount of the contribution.

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