With the mess that many states are in with regard to their respective state unemployment trust fund, the unemployment tax policy is going to get a bit more complicated. More than ever, having a consistent and controlled unemployment tax billing strategy is critical for PEOs.
The actual FUTA tax is 6.2%. States that pay their state obligations on a timely basis receive a credit of 5.4%. If a state has an outstanding loan for two consecutive years, the credit is reduced by .3%, therefore increasing the FUTA tax on wages in that state. The credit is reduced by .3% each subsequent year there is an outstanding loan balance.
SUTA thresholds, the wage base that is subject to the unemployment tax, is also being increased in many states. Additionally, some states may be issuing a surcharge for wages paid in the prior year to help make up the shortfall.
For 2009, the only state that is affected by the FUTA credit reduction is Michigan. What that means is that for all wages paid in Michigan in 2009, a “surcharge” of .3% on the first seven thousand dollars of wages per employee will be due with the Jan 31, 2010 form 940. In 2010, barring some miraculous turn around in the economy, there will be several other states that will be in the same boat. These states include Florida and California.
The surcharge equates to $21 per employee. Not a huge concern for most small employers. Since this is a charge in arrears (for prior year wages), a PEO may have a difficult time collecting this charge from clients. A PEO may have an exposure of thousands of employees resulting in a significant blow to profitability.
To set up ClientSpace to properly account for this rate on new proposals, use the “Misc Taxes” on the State Master form. This will automatically add the associated rate to all new clients. If ClientSpace is the source of the proposal and/or CSA that you present to clients, you may need to modify these outputs to reflect these additional taxes.
Also make sure to update the “SUI Drop Threshold” for any states that have modified this calculation. I know many states are changing this amount. In Florida, the threshold is being raised from $7000 to $8500 in 2010.