ETS Tax Intelligence: Spring Cleaning for SUI Tax Rates
Unemployment insurance was created to provide temporary income to workers who lose their jobs through no fault of their own. These benefits are paid from trusts funded largely by employers via state unemployment insurance (“SUI”). The amount of SUI taxes paid by an employer depends on a variety of factors including economic conditions, an employer’s hire/fire practices, the number of claims filed, and the amount of benefits paid. Benefit charges are a primary driver in the determination of an employer’s SUI tax rate. Other factors include payroll levels, taxes paid, and an employer’s reserve account balances. Managing these factors to reduce SUI tax costs requires collaboration between multiple disciplines within an organization (such as Payroll Tax and Human Resources) and the assistance of a trusted advisor who specializes in unemployment cost management.
For most employers, SUI tax costs fluctuate and lag behind the current economic cycle. After a recession, most employers SUI tax rates increase as states look to restore SUI trust fund solvency. They then begin to decrease once SUI trust funds are replenished. This cycle then repeats itself, as illustrated in the table to the right. In 2009, during the height of the recession, the average SUI tax rate was 2.28%. By 2012, it had increased by 153% to 3.48% before decreasing back to 2.67% in 2015.
However, even though SUI rates are currently in decline on average, most SUI trust funds are still not properly funded due to the severity of the Great Recession. As you may recall from the April 2016 issue of ETS Tax Intelligence, thirty-five (35) states are still not considered adequately funded and it is unlikely they will reach the desired solvency level before 2018, when many economists believe the next recession will occur. Improving claims and tax management practices can assist in reducing significant variances in your organization’s SUI tax rates caused by changing economic conditions.
Unemployment Claims Management
Key claim metrics employers should understand of their own organizations include: protest rate, win rate, and average cost per claim. During a recent Equifax webcast presentation, Brent Gow, Director of Global Payroll for Starbucks, recommended protesting at least 90% of protestable claims and striving to win at least 85% of those protests. When responding to claims, providing the state workforce agency with full, accurate, and complete information is required to meet those best practice benchmarks and adhere to “UI Integrity Laws.” Access a detailed summary and slides of the May 4, 2016 webinar featuring Brent Gow.
In reality, obtaining separation information can sometimes be difficult because of resource limitations, competing priorities, and having claims management responsibilities with one department while having tax management responsibilities with another. In those cases, finding a common link is important to earn “buy-in” on the importance of a coordinated unemployment cost management program. Tying benefit charges to an employer-specific unit of measure can sometimes assist in securing this “buy-in.” Mr. Gow illustrated this with the number of cups of coffee that would need to be sold to cover the tax impact of one lost claim within Starbucks. The importance of each claim can also be demonstrated by understanding how many more claims an employer would have had to win in order to secure a lower SUI tax rate or the number of lost claims necessary to obtain a higher rate.
Unemployment Tax Management
Managing SUI tax rates involves more than just reducing benefit charges. Managing SUI tax rates involves other best practices such as verifying rates to ensure there are no errors in the states’ calculations, reviewing voluntary contribution and joint account savings opportunities, and ensuring that M&A transactions are properly reflected in the SUI tax rate. Although most of the factors used in 2017 SUI rates have now been set, employers must take action now to implement best practices to impact 2018 SUI tax rate calculations.
With the many competing priorities given to payroll professionals, having a partner to assist with managing the complex and time-consuming unemployment cost management process can produce a meaningful annual ROI. A knowledgeable partner allows you to take advantage of available technologies (such as CaseBuilderTM for managing unemployment claims and TaxManagerTM for managing SUI tax rates), help identify and analyze key metrics, and initiate actionable insights. For more information, please contact Pete Krieshok at (314) 214-7325 or via e-mail at firstname.lastname@example.org. You can also visit our insights blog for information on other employment tax matters that might impact your organization.
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