Biz Tips

State Unemployment Tax and ways to reduce costs!
by Express Payroll & Sean Dever, CPA & Associates


Often, as a provider of payroll services, we have questions from employers that indicate there’s a misunderstanding of unemployment taxes and how the amounts are calculated. Although most small business owners think that unemployment taxes are just a cost of doing business, there are actual ways to control such costs that can provide significant savings.

State Unemployment Tax (SUTA) is collected by your respective state and is used to pay unemployment benefits to unemployed workers. Typically, SUTA is paid entirely by employers with the exception of Alaska, New Jersey & Pennsylvania where employees are subject to a small unemployment tax as well. SUTA amounts are paid on a quarterly basis and your payroll provider can help you with calculating and remitting these amounts on your behalf.

SUTA is calculated for each individual employee each year. Each state has a wage cap used for the SUTA calculation that once reached, stops the further liability for additional SUTA tax amounts. Each time an employee quits (who has reached the SUTA wage cap) and a new person is hired, the SUTA obligation starts anew for the newly hired person. The net result is that employee turnover can be a significant factor in driving higher SUTA costs. It does not matter whether the person quit or was fired or if they file an unemployment insurance claim. The SUTA liability is calculated on the wages (up to the wage cap) of every employee that worked during the year. Companies with high employee turnover and relatively low wages have the most SUTA financial impacted from turnover.

SUTA is calculated by taking your SUTA assigned tax rate multiplied by your wages paid that are subject to SUTA. The SUTA tax rate is assigned to your company by the Workforce board (or other state agency) in each state where you have employees. The amount of wages that are subject to SUTA each year is on a per employee basis up to a maximum wage value (state wage base or wage cap) and this is different for each state and is indexed annually. As an example, Massachusetts wage base is $15,000 for 2018, thus the liability will accrue for each employee until the wage cap is reached (or sooner if they terminate employment).

Using a simple example, assume an employer with a SUTA tax rate of 4% has two Massachusetts based employees earning $10,000 and $25,000, respectively. Assuming the state wage base is $15,000, then the total liability for this employer is $1,000 for the year (calculation for employee one is $400 ($10,000 x 4%) and $600 for employee two ($15,000 wage cap x 4%)).

As explained, your company’s SUTA taxes are the product (multiplication) of your tax rating and your SUTA subject wages. Reducing turnover may reduce the amount of subject wages but ensuring your tax rating is consistent with others in your industry and within your state can play an equal role in reducing your overall costs. If you’d like specific information on experience ratings amongst the Gymnastics Industry or have further questions on any of the above please feel free to email me directly at sean@express-payroll and reference “USAG Newsletter.” Good luck with savings costs on Unemployment for 2019!

Express Payroll is a cloud based payroll solution offering payroll, benefits and human resource management to over 600 Gymnastics Schools across the United States. Express Payroll is a full service solution customized for the industry used for employee and contractor payments and can be found at www.express-payroll.com. Sean Dever is the President of the company and can be reached at sean@express-payroll.com.