SUTA (state unemployment tax assessment) or SUI (state unemployment insurance) is charged by every State to businesses to cover unemployment claims. Every business is rated on their claims and given a base rate that they must pay to stay out of legal hot water with their State.
But, what are cutoff’s? Once you have paid a particular employee a certain amount of pay over the course of the year, the SUTA is cutoff. For example, in the State of California, once you have paid an employee $7,000 in one year, you no longer have to pay unemployment taxes on that employee. The cutoff point varies from State to State.
How does a PEO handle this? It varies from PEO to PEO. Some honor cutoffs…some ignore them entirely. Others smooth out your SUTA rate over the year. So you may see a SUTA rate billed at a fraction of what you would normally expect…but it is likely that you will continue to pay that rate for the full year.
You should check with your PEO or HR Outsourcing provider to see how they handle cutoffs.
Moving to an HR outsourcing company, particularly a PEO (professional employer organization) can have tremendous benefits when dealing with workers compensation insurance as it pertains to State-sponsored funds. One major state-sponsored fund, the California State Fund, will be seeing a large increase in rates in the coming months. There is a great opportunity for all businesses to reevaluate that relationship to see if there is a better way of doing business.
How can PEO’s help these businesses? By getting you out of the fund entirely and partnering with the PEO and placing your risk (employees) on their books.
From our experience we have seen discounts on workers comp by as much as 50 percent. In addition, the comp coverage becomes a pay-as-you-go solution, freeing up your cash flow.