As a refresher, unemployment insurance (UI) is financed through the Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA). Employers pay annually to the IRS using the Form 940, and the money is kept in a reserve to pay employees who are let go at no fault of their own.
These are the basics of UI, but determining the exact amount each company will pay depends on a variety of factors. It’s important for companies to be aware of what effects the total amount, and do what they can to keep costs manageable. Here are three critical unemployment tax rate factors.
State Specific Tax Amounts
Because UI is a joint effort between federal and state governments, FUTA sets its standard (currently six percent on the first $7,000 of an employee’s wages) for all companies and then each state sets their own as well. It is determined by state law, and all the money paid is only used to pay unemployed workers.
Compliance With Unemployment Insurance Integrity Act
In 2011, the Unemployment Insurance Integrity Act was signed in an attempt to minimize UI overpayment and keep companies compliant. As an employer, this means you need to respond to state agencies on time.
Failing to respond to all their inquiries about claimants, or do so in an acceptable period of time, can cause your total tax amount to increase. Fines can even be placed against you, meaning you’ll pay more on top of the taxes.
Total Number of Claims From Employers
Unemployment tax works a lot like insurance: When you file a lot of claims, your rates will go up. When you have a few good years without incident, your rates go down. If you consistently have to let employees go and they file for UI, your tax rate will go up to ensure that your laid off workers are covered. After a few years with a more balanced turnover rate, you’ll see your tax rate drop.
Let Unemployment Tracker Keep Your Rates Low
While some factors, like state rates, are out of your control, you can improve your compliance with the state agencies. Managing unemployment claims can be a lot of work, and it’s understandable how companies fall behind. Instead of accepting the fees, fight back and find a software that can save you time and money. No matter your budget or level of knowledge, Unemployment Tracker has the right solution to fit your company.
Try a live demo and see how it can help you!