Download Client FAQs: Answers to some of the most commonly asked

Client FAQs: Answers to some of the most commonly asked questions
What is SUTA?
SUTA stands for State Unemployment Tax Act. It is also sometimes referred to as SUI, which stands for State
Unemployment Insurance. SUTA is a mechanism by which states collect taxes from employers in an effort to pay
out unemployment. In every state in the US, employers are required to pay state unemployment taxes, commonly
referred to as SUTA.
How is SUTA calculated?
SUTA tax rates and caps are usually different in each state. Costs are charged to employers, not to employees. Tax
amounts are calculated for each employee based on the actual wages paid to the employee and the unemployment
experience rate of the company. Taxes due for each employee are usually capped at a max wage amount called the
cutoff amount. Each state has different SUTA cutoff thresholds. In addition, each state has differing minimum and
maximum rates. SUTA costs adjust as unemployment rates fluctuate.
Why are payroll costs increasing?
The State Unemployment Tax Act (SUTA) and Federal Unemployment Tax Act (FUTA) are responsible for two of
the most significant direct costs associated with employing someone. With the vast number of people out of work,
job creation slow, and an unemployment rate remaining stubbornly high, 28 states currently owe more than $38
billion to the federal Unemployment Insurance (UI) trust 1. The burden of replenishing these trust funds falls on
employers, and states are responding to the crisis by raising the cost of unemployment insurance paid by
employers.
How is SUTA factored into billing rates?
SUTA (or SUI) rates are an integral part of the statutory burdens that we have to pay out for each of our employees
on assignment. These burdens include: FICA (Medicare and Social Security), workers’ compensation, federal
unemployment, state and local taxes, and SUI. These burdens are all government mandated and are part of the
actual “total cost” of the employee. This “total cost” becomes the starting point for building client-specific pricing
models.
What is the change in Randstad Healthcare’s rate, and when will it go into effect?
We will be making a modification to our pricing, adjusting the bill rate by 1.75%, effective June 10, 2012.
If SUTA goes down, will we consider rate reductions?
We are willing to address pricing when SUTA goes down.
Are all staffing companies increasing prices as a result of SUTA increases?
If they are not yet, they will be. All employers incur the same costs, and that includes all staffing firms. Market
intelligence we have gathered so far has validated that our competitors are taking a consistent and similar stance
with their own clients.
1
“Tax Intelligence – Federal Unemployment Insurance (UI) Legislative Update,” TALX Corporation, 02/12.
Faced With Rising Payroll Costs, Employers Can Turn to Workforce Experts for Guidance
The depth and breadth of the “Great Recession” forced many states to raise unemployment insurance (UI) rates and taxable
wage bases to compensate for trust fund shortfalls. Employers are paying the price with every hire. How much will rising payroll
insurance costs impact profit and loss statements and what can employers do to minimize that impact? Strategic workforce
planning partners offer some insights ― and solutions ― for 2012 and beyond.
Why Payroll Costs Are Increasing
The State Unemployment Tax Act (SUTA) and Federal Unemployment Tax Act (FUTA) are responsible for two of the most
significant direct costs associated with employing someone. In essence, SUTA and FUTA fund unemployment benefits, and both
funds are depleted due to the magnitude of the recent recession. With the vast number of people out of work, job creation slow,
an unemployment rate remaining stubbornly high, 28 states currently owe more than $38 billion to the federal Unemployment
Insurance (UI) trust2. The burden of replenishing these trust funds falls on employers. States are responding to the crisis by
raising the cost of unemployment insurance paid by employers.
National Unemployment Trend
Short-Term Outlook Uncertain, but Benefits Extensions Prove Positive for Economy
Short-term, employers are anxious to know how long they will have to pay unemployment benefits to former employees. As of
this writing, individuals in some states are eligible for 99 weeks of unemployment compensation benefits (26 weeks of regular
benefits, 53 weeks of federal extended benefits, and 20 weeks of state extended benefits). However, as we dive deeper into
the election season, there may be pressure to enact new legislation for those who have exhausted their benefit options.
With the current activity in the political landscape, leaders are expected to take a hard look at the economic payoff associated
with extending unemployment benefits. In 2010, the U.S. Department of Labor published the findings of a multi-year study on
this connection. Using UI data and the proprietary economic model from Moody’s Economy.com, researchers studied how gross
domestic product, employment, and other economic variables would have performed without the increase in regular UI
benefits; federally funded Emergency Unemployment Compensation; and Extended Benefits, including the offsetting effect of
the payroll taxes that pay for UI. The findings validate that the economy performed better through the most recent recession
than in previous recessions due to aggressive bipartisan efforts in both the Bush and Obama administrations to expand UI
benefits and increase eligibility.
With unemployment insurance helping the unemployed continue to purchase vital goods and services to fuel the economy, the
study highlights the following findings3:

For every dollar spent on UI, economic activity increases by two dollars.

During each quarter of the recent recession, UI benefits kept an average of 1.6 million Americans on the job.

At the height of the recession, UI benefits averted 1.8 million job losses and kept the unemployment rate
approximately 1.2 percentage points lower.

UI benefits reduced the fall in GDP by 18 percent. Nominal GDP was $175 billion higher in 2009 than it would have
been without UI benefits. In total, unemployment insurance kept GDP $315 billion higher from the start of the
recession through the second quarter of 2010.
It is likely that the current administration will rely in part on these findings as well as forward-looking projections of economists
relative to job creation to guide them in making any decision to grant additional extensions in benefits.
Long-Term Outlook Clear: UI Costs Will Continue to Rise
Compounding the current UI deficit is lower-than-usual trust fund balances at the onset of the last recession. Many states had
reduced unemployment taxes earlier in the decade during better economic times, and as a result, were left profoundly
underfunded for the most recent recession. That means the wells were never deep enough to sustain even a more mild
recession, yet alone one of the magnitude recently felt. Now, the federal loans have to be repaid and the trust funds replenished
at an accelerated pace before the next recessionary cycle. The only way to do that is to tax employers.
Companies in at least 35 states will have to pay more in unemployment insurance taxes this year, according to the National
Association of State Workforce Agencies. Texas, for example, paid 330,000 residents a total of $325.7 million in December, up
from 228,000 people claiming $216.8 million a year earlier. Employers in that state will have to pay at least $64.80 in tax per
2
3
“Tax Intelligence – Federal Unemployment Insurance (UI) Legislative Update,” TALX Corporation, 02/12.
“The Role of Unemployment Insurance As an Automatic Stabilizer During a Recession,” Vroman, Wayne, IMPAQ International, LLC, US
Department of Labor (http://d.dol.gov/BW), 11/16/10.
worker in 2011, up from $23.40 a year ago. This is the highest rate in 20 years. 4 Florida has been forced to borrow $2.4 billion
from the federal government since 2009, and must pay interest on the unpaid balance.5 Though the Florida Legislature just
agreed to scale back a proposed tax increase on the state’s businesses, the move will still cause the minimum tax rate to jump
from $72.10 per employee to $121. Hawaii currently has proposed legislation that could increase the state’s unemployment
tax by an astounding $650 per employee.6
Three Ways to Mitigate the Impact of Rising UI Costs Right Now
With the cost of employing a worker going up, there are tactical steps hiring managers can take to protect their margins as they
staff up to meet business demands in better times.
First, since UI tax rates are based on an employer’s experience rating, it is more important than ever to have a disciplined
claims management process in place to control costs once an employee terminates. Legitimate reasons for disqualifying
unemployment claims include separation for misconduct or criminal acts and voluntary quits due to health reasons. While each
case is different, proper documentation is a best practice that helps an employer maintain some control over the process.
Documenting performance issues isn’t all that’s required; managers must do the right thing when releasing an employee. Some
employers ― reluctant to fire employees for cause because of the discomfort or fear of retribution ― elect the less
confrontational approach and treat the release as a layoff. This strategy puts the firm at risk, increasing the potential the
departed employee will qualify for unemployment compensation. After every termination, employers should also be vigilant
about watching for signs of fraudulent claims.
Second, actively seek opportunities to re-employ those previously released who are collecting benefits. Each time a
job is created, former employees who left in good standing should be considered first, whether full-time or as contractors.
Third, cut costs elsewhere to offset the increased payroll expense. There are always ways to operate more efficiently and
save the organization money. Consider bucketing expenses by “must-have” and “nice to have” ― and then cut back on the
non-essentials.
Strategic Workforce Management Key to Cost Containment Long Term
The consequences of the recent recession are forcing employers to think differently. They must approach budgeting for labor
as a strategic planning exercise. Employers can reach out to their staffing partners for help evaluating their workforce, position
by position, to determine whether a specific job must be full-time or whether it is more efficient to use contingent labor.
According to a 2011 Staffing Industry Analysts survey, 86% of respondents agree that employers who utilize contingent labor
effectively to augment their full-time workforce save money. They estimate they realize a median 13% savings as a result, an
increase of 4% over the previous year.
Staffing Industry Advocates for Employers to Halt Additional Payroll Cost Burdens
Job creation is a priority, and deterrents to hiring block progress. With the economy in a fragile state, employers need incentives
to hire, not more reasons not to hire. The staffing industry is flexing its political muscle in Washington to keep labor costs down
and drive job creation up.
The American Staffing Association recently announced it will join dozens of business groups requesting two years of relief from
interest on money that states have borrowed from the federal government to replenish their unemployment insurance trust
funds as well as relief from automatic federal unemployment tax increases ― an imminent threat as of this writing. Both the
interest and the tax increases would raise employers’ tax burden on top of their already increasing state unemployment tax
obligations.
The relief campaign is led by UWC-Strategic Services on Unemployment and Workers’ Compensation, and it urges Congress to
enact legislation that will, through 2012, waive FUTA penalties on employers in states borrowing money to pay unemployment
compensation. UWC notes that without such a waiver, FUTA taxes on employer payrolls will be increased by $2.5 billion in
approximately 25 states in 2011 and are projected to increase by $3 billion in 35 states for 2012.
While the increased cost of employing workers is ultimately a burden Corporate America must bear in the years ahead,
employers can take both tactical and strategic steps to operate more efficiently now and minimize the impact to their profits
over time. The right staffing partner can be both a strategist and an enabler of effective labor management.
4
“Unemployment Taxes Slam Businesses,” Luhby, Tami, CNN Money,
http://money.cnn.com/2010/02/09/news/economy/unemployment_taxes/index.htm, 2/9/12.
5
6
“Unemployment Tax Decision,” WCJB-TV ABC News, http://www.wcjb.com/state-news/2012/03/unemployment-tax-decision, 3/6/12.
“Hawaii Lawmakers Seek to Forestall Unemployment Tax Increase,” Pacific Business News,
http://www.bizjournals.com/pacific/blog/morning_call/2012/01/hawaii-lawmakers-seek-to-forestall.html, 1/13/12.