With the advent of the Covid-19 pandemic and the constant chatter about unemployment benefits, more companies are subject to being blindsided by an expense they never gave much attention—a significant increase to their SUTA rate.
What is the SUTA tax?
The State Unemployment Tax Act (SUTA, also called SUI) enables each state to collect unemployment insurance from employers. The tax is used to pay benefits to employees who are laid off or furloughed. Each state has its’ own unique rates and caps.
Who pays the SUTA tax?
Every for-profit employer is subject to SUTA. Once you hire your first employee, you’ll be legally responsible for making SUTA payments. More often than not, the employer pays the SUTA tax. However, in some states like Alaska, New Jersey, and Pennsylvania, the SUTA is partially garnered from an employees wages. If your company has a seasonal component or recently furloughed employees due to COVID-19, there is a high likelihood your SUTA tax rate will increase.
Changing SUTA Rates Could Hurt Your Business
Let’s take a look at some of the numbers. Say you own a painting operation based in New Jersey. You have 25 employees earning an average of $40,000. Due to the COVID crisis and no fault of your own, you temporarily furloughed some employees and your SUTA rate went from 2.8% to 5.4%.
At a 2.8% SUTA rate, each employee has an annual SUTA cost of $988.40
$35,300 (NJ SUTA cap) * .028 (our new employer rate in NJ) = $988.40 per employee annually
With 25 total employees, an employer could expect to pay $24,710 over the course of a year in SUTA.
$988.40 (per employee SUTA cost) * 25 total employees = $24,710 annual employer SUTA cost
That is a significant sum of money. Since our example company furloughed some employees, their SUTA rate went up to 5.4%. Let’s take a look at what that cost would look like:
$35,300 (NJ SUTA cap) * .054 (post COVID-19 SUTA) = $1,906.20 per employee annually
$1,906.20 (per employee SUTA cost) * 25 total employees = $47,655 annual employer SUTA cost.
Our painting company went from paying $24,710 in SUTA annually to $47,655 annually. This is a hidden cost of doing business and a significant increase from the previous year. If a company has more than 25 employees, the SUTA cost can become insurmountable.
How to Avoid Drastic Increases in SUTA?
What can our painting company do to avoid paying this drastic increase? They can partner with Cornerstone PEO. Cornerstone is a full service PEO offering a variety of benefits for payroll, workers’ compensation, and SUTA savings.
Not sure what a PEO is? Check it out here.
When a company joins Cornerstone, they can expect their SUTA to remain constant year over year. Cornerstone fights unemployment claims on their clients’ behalf, keeping SUTA costs fixed and low. Cornerstone knows how to navigate the regulatory landscape to keep more hard-earned money in your pocket. Cornerstone can also save you money on your workers compensation and payroll costs, all while providing an exceptional level of service.
Like other PEOs, Cornerstone will help you save significantly on employee benefits, automate your payroll, lower your experience modifier, and help with certain employee related compliance. However, unlike other PEOs, our focus is on excellent customer service.
Other PEOs will just add you to their system and send you an invoice. At Cornerstone we assign a professional customer service rep to work with your account. This not only adds more of a human touch, but it also allows us to create custom solutions unique to your business. Got questions? We have a rep to help you answer them. A problem occurred? You have a rep who understands your business and can create an effective solution.
Contact us here for a FREE consultation.