If you are wondering how you can trim payroll costs, you have come to the right place. Payroll is one of the highest expenses for most business owners and keeping it at a manageable figure is a key to maximizing profit margins. There is a way to save on the State Unemployment Tax (SUTA) which can significantly reduce payroll tax costs especially if your business has a large workforce or has high turnover.
New businesses that hire a labor force, start at a state based rate which varies across the United States. However, over a period of time (determined by the state in which your company is located) your SUTA rate can be reduced by avoiding unemployment claims. The rate will continue to drop and can be substantially reduced for companies who have very few terminated employees. This practice will take several years of claim free operations to make a significant impact.
Patience is a virtue, but for those who are looking for more immediate savings on unemployment taxes, co-employment through a PEO or Employee Leasing company may be a great option. Because some PEO’s maintain extremely low SUTA rates, they can extend these discounts to their client companies. This can offer multiple percentage point discounts, which can translate to thousands of dollars in annual savings, depending on the size of the work force. Blended rates are also offered to companies who have high workforce turnover.
In addition to restarting the SUTA wage basis with each new hire, companies who have routine staff turnover generally have more unemployment claims from terminated employees. This can be problematic for companies such as restaurants and low-skill labor businesses with a considerable number of employees. Not only is the SUTA rate increased in this situation, these companies are constantly paying this inflated rate throughout the year because the capped wage basis generally isn’t met before replacing an employee.
This is another example of an applicable instance where a PEO can come to the rescue. Blended PEO rates are great for these companies because they include a built-in cost for State Unemployment Tax but extend it to the client at a fraction of the price. The difference here is that the SUTA rate is charged all year instead of cutting off at the designated wage basis cap. You may be wonder why this is such a benefit. Well, as briefly mentioned above, many companies with extremely high turnover pay SUTA for their employees all year already due the constant influx of new hires. Many employees never meet the SUTA cap before resigning or being terminated and this allows business owners to pay a much lower SUTA rate throughout the year.
For more information on the benefits of a PEO or how your company may be able to take advantage of co-employment offerings, please contact your insurance agent or a representative at SmartComp Solutions.
SmartComp Solutions, Inc. is an independent company assisting clients with Payroll Services, Workers Compensation Insurance, Human Resource Management, and Employee Benefits. Although we are based in Florida and have many local partners in the Tampa Bay area, our reach is national and we serve clients in all 50 states. SmartComp Solutions, Inc. was founded on the principle of providing sensible solutions for employers to efficiently manage their workforce. Our goal is to eliminate the administrative burden of running a workforce so that business owners can focus on the revenue generating aspects of their company that they enjoy.
The purpose of this blog is to present general information only. It does not interpret specific Insurance policies or Insurance coverage, nor is it intended to offer legal or tax advice. To obtain detailed information regarding your insurance, legal, or tax matters contact a licensed and accredited professional.