PEO Employment can Help Soften SUTA Costs

All small businesses, no matter the state they are located in, are required to pay a federal unemployment tax (FUTA) along with state unemployment taxes if required by that state (SUTA).

The rates and the maximum amount the business will pay are different depending upon your state’s rules. Unfortunately for the employer, these taxes are charged directly to him and cannot be passed on to the employee. The amount charged is calculated based on a percentage of the wage an employee is due, and off the experience rate of your company. Usually, a new company will start with a higher rate and can have this adjusted as each year goes on.

If the new company experiences layoffs or downsizing, the rate may increase to the maximum amount or cutoff. Each state has different SUTA cutoffs with different minimums and maximums. Taxes at this time are reported quarterly and paid directly to the state.

So, knowing that small businesses can be adversely affected when losing employees, we would like to show how PEO Employment can smooth out the cost increase if you happen to find yourself in this position. 

A Professional Employer Organization will work with small businesses as the co-employer of each employee, which allows PEOs to become the employers of record in the state. PEOs will calculate the state unemployment rate due for the business, in addition to filing and paying the taxes for you.
If you have grown your business across state lines, this process is an extremely valuable time saver for you.

Additionally, PEOs may actually use their own experience rating. This may help as it can decrease your taxes, but it will not affect the rate you pay through the PEO company's employment agreement.

Effectively, PEO Employment can often offer you a rate that is less than your current rate. Consequently, you immediately start saving money, and the PEO's sharing responsibility of experience won’t necessarily get socked with a huge SUTA increase during a time of downsizing. The staff leasing company's responsibilities vary from state to state, however the PEO’s advisors can help you understand just how they can assist, whether it’s savings in time, money or both.

About the Author

Anthony Kelly is a frequent contributor to and has experience working for small businesses and Professional Employee Organization companies since 1997. He frequently writes about compliance, HR, technology, and other issues affecting the small business owner.

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