Strategies to Lower Your Unemployment Tax Rate
As the state unemployment insurance (SUI) tax rate season approaches, now is the time to review best practices for reducing your employment tax rate for 2015. States offer three primary savings opportunities for employers to reduce their overall SUI burden.
Voluntary contributions allow employers to make a one-time payment into a state’s UI trust fund, effectively offsetting benefit charges used in rating calculations, which can reduce the employment tax rate. When analyzing opportunities, it is important to review the ability to reduce the employment tax rate by multiple brackets and account for any upcoming changes in workforce (such as a merger, acquisition, reorganization, divestiture or reduction in workforce) in the cost-benefit analysis.
Due to the strict deadlines for voluntary contributions (typically 30 days after the issuance of tax rate notices), it is important to be aware of each state’s UI laws to undertake the proper analysis and assure payments are made in a timely manner.
The formation of a joint account permits two or more legal entities to combine their state experience rating factors to obtain a single UI tax rate applicable to all members participating in the joint account. The goal is to achieve a lower combined SUI tax cost for the members as a whole. This means that some members may realize an increase in rates while others realize a decrease in rates. Each state offering this unique savings opportunity varies in the compliance requirements associated, such as application deadlines and minimum duration, making a detailed review necessary to prevent unexpected outcomes.
When reviewing joint account savings opportunities, it is important to consider fluctuations in workforce, including M&A transactions and internal employee movements. It is also necessary to review all possible legal entity combinations, including unaffiliated legal entities in certain jurisdictions, to optimize the savings realized.
Negative reserve account write-offs are available in New York and Pennsylvania. In New York, when a portion of an employer’s negative reserve account balance is written off by the state, the employer can elect to make a special payment, similar to a voluntary contribution, to avoid the assignment of the maximum UI tax rate for three years. The New York reserve account balance write-off is not elective, but the special payment represents an option for the employer. Pennsylvania allows an employer to elect a write-off of a portion of its negative reserve account balance in exchange for the assignment of the maximum UI tax rate for three years. Performing a cost-benefit analysis can determine if the election produces long-term savings.
For more information about the three employment tax rate savings opportunities identified above, contact Pete Krieshok at (314) 214-7325 or via email at pete.krieshok@Equifax.com.