SUTA-The Iceberg that is Not On Anyone’s Radar

By Brad Qua (The Reserves Network Vice President, National Sales)

Every day it seems like the newspaper lands on our doorstep with a new obstacle on the business horizon that threatens to sink our ships. We’re still unsure what the impact of the Federal Healthcare Reform Act, Healthy Families Act (Ohio) and the Free Choice Labor Act will have on our business, but they are certainly on the radar.

In addition to these items, there is one issue that will have a large impact on every business’ labor costs and not even legislators are willing to discuss it because they currently have no solutions.

36 of the 50 states’ unemployment funds are flat-broke and six more are almost out of money. What each of these states has done is borrow from the federal government through the FUTA fund in order to pay the unemployment benefits that are due to its unemployed residents.

Each state has a repayment plan that is based on the amount and date that they first started borrowing. The problem is that the most recent recession has been so profound. While the funds are designed to be replenished by the time the FUTA loans are due, the states are still broke.

If one were to ask an HR or payroll professional what the FUTA rate is, they would tell you that it is .8% of the first $7,000 of payroll. The actual rate is 6.2% of the first $7000. However, the Fed offers a credit reduction from that rate to each state as long as the state either has a zero balance or is paying back as required. The problem that will soon come to a head is that states with outstanding loans can’t pay them, which, by law, will trigger the elimination of the credits.

What this means is that the federal portion of employers’ unemployment tax will go up independent of the states’ portion. In real terms, this means that each year that the state does not make its payments in full and on time, their FUTA rate will grow by .3%. And it is reasonable to estimate that it will take at least 5-7 years for the state funds to become solvent themselves, let alone able to repay federal loans.

But wait, there’s more – Unfortunately the states are going to be forced to replenish their funds as soon as possible. Therefore, you can be sure that states will raise not only their percentage rates, but also your state’s base wage rate, and this could easily double or triple your own SUTA costs.

Brad Qua is the Vice President, National Sales for The Reserves Network, a provider of “Total Staffing Solutions” in the office, industrial, professional and technical markets. To contact Brad, email bqua@trnstaffing.com.

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