What is SUTA?

SUTA – the State Unemployment Tax Act – is a payroll tax that employers are required by law to pay for their employees. Essentially, it exists to help provide benefits to displaced workers, and costs tend to go up for businesses in high-turnover fields. SUTA rates are assigned annually to companies, and the tax is paid quarterly.

Most unemployment claims are paid out with limited questioning, and there are cases where you cannot avoid payouts to former employees. However, there are also situations where employees have no right to file a claim – knowing the difference, and how to prove it to the local agency – could save your business thousands of dollars every year.

How To Protect Your SUTA Rate

• Contest Questionable Unemployment Claims: Workers are not eligible for state unemployment benefits if they either resigned from the company on their own or were terminated for a legitimate cause (violation of company policies is a common for-cause reason to deny benefits).
• Reduce Turnover: The more you hire and fire, the higher your SUTA rate will tend to rise. For mid-sized companies, it’s best to try and move personnel with transferable skills to a department that needs them rather than letting go of them. For all companies, try to improve your screening and hiring practices so you can focus on hiring employees who are likely to stay with the company long-term. As an added bonus, this means you’ll have to spend less time and money searching for talent, reducing your cost of doing business even further.
• Manage Terminations More Effectively: The entire termination process should be well-documented, ideally with step-by-step procedures to try and improve employee performance. If your company can demonstrate that you made every reasonable attempt to help the employee, but they still continued to violate company policy, you have a much greater chance of successfully fighting off an unemployment claim.
• Audit The Statements: Unfortunately, clerical errors are quite common in unemployment claims, mostly because there are so many of them that the workers are trying to process at any given time. You could, for example, be assigned a claim from another company, or charged for unemployment benefits that are never actually delivered. Avoiding this means fully auditing every SUTA statement and report you receive.

What NOT To Do

All of the tips we discussed above are good ways of lowering your SUTA costs – but there are also some things you shouldn’t do when you’re trying to keep rates down.

• Incorrectly Classifying Employees: Some businesses attempt to reduce their SUTA rates by incorrectly classifying employees as independent contractors – which, in many cases, would also improperly deny other benefits that employees are entitled to.
• Obtaining Multiple Account Numbers: Each state has an agency that assigns SUTA account numbers to businesses, and companies have been known to apply for several numbers, then switch all employees to whichever account has the lowest rate for that year.
• Shuffling Employees: With this method, a business – typically a larger one, with a lot of cash on hand – buys a company that has a lower SUTA rate and shuffles employees into that business, taking advantage of the lowered tax rate on top of any other benefits from purchasing that company.

Collectively, these practices are an illegal form of rate manipulation known as “SUTA dumping”. If you’re uncertain about whether or not a given practice would count as SUTA dumping – and potentially incur significant fines – get in contact with us here at Cirrus Payroll, and talk to your company’s legal adviser.