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SUTA Rates and the Importance of Documenting



What is SUTA?


The State Unemployment Tax Act (SUTA) is a type of payroll tax that states require employers to pay. The money that goes into the SUTA fund is used to pay out unemployment insurance benefits to unemployed workers when they are approved for benefits. Simply put, the more terminations you have that result in approved unemployment claims the higher your SUTA rate.


Think about it like a personal budget for emergencies or a “rainy day” – when you set money aside each day/week/month into a fund to use only in those emergencies. For example - You lost your job, your HVAC unit went out, your car broke down, etc. When these events happen, you go to your emergency or “rainy day” fund to help pay for these expenses without it having too big of an impact on your day-to-day life. Maybe you know you need to buy another car this year, your roof is over 20 years old and it’s ready to be replaced, your HVAC unit is on its last leg, so you plan to put 15% of your paycheck into the fund versus 10%. These things happen and are sometimes inevitable but that’s why you prepare.


The same is true with SUTA. The more UI claims that are filed, the more money that needs to be contributed. Alternatively, when funds are not being deducted from the account because you haven’t needed to pay UI claims, the less money you may need to contribute because the account has a healthy

balance to support an emergency when it comes up.


How SUTA rates can impact you


Just like the rainy-day fund, SUTA rates operate very similarly. Employers are required to pay a certain amount each month based on the usage of the funds. If employees are continuously receiving UI benefits, you will be required to contribute more money to the fund to ensure there is enough to pay out when an employee is approved for an unemployment claim. This in turn, results in an increased SUTA rate. Alternatively, when funds are not being used in the account due to a reduction in unemployment claims or denied unemployment claims, the SUTA rate decreases because the fund is not being used. This is the States “rainy day fund” that is a benefit for employees who are out of work and approved for unemployment benefits. The SUTA rate is based on how much is deducted from the fund. – and just like the rainy-day fund, the more money that is deducted, the more money employers must pay to ensure that there are sufficient funds to pay UI benefits.


This is why Advisor HR has taken the position that “we fight all claims” (with limited exceptions like a Reduction in Force or when there are special circumstances.) Our job is to keep your SUTA rate as low as possible, but we need your help to do this.


How Can You Help Us Help You Reduce Your SUTA Rate?


The termination of employees is an inevitable aspect of managing a workforce. However, improper termination practices can lead to increased unemployment approvals, higher costs for the organization, and potential legal issues if there is no documentation. To mitigate these risks, it is important that employers follow due process before terminating an employee.


1. Advanced Warning

Have clear and consistent policies that provide advanced warning. Do you have an employee handbook? Are your employees clear on what’s expected of them? Can you show that the policies have been well communicated through onboarding and/or periodic training sessions? Having these in place will help set the foundation for what’s expected and clear on consequences when not followed. But this is only the first step. Policy by itself may not be sufficient to prove NOTICE.


2. Immediate Action

Act immediately through a Notice of Disciplinary Action (NODA) and provide a fair opportunity for the employee to correct performance or behavior. By waiting too long, the event or behavior may become a norm and can have less value and impact on the employee when the NODA is issued.


3. Consistency

Be consistent when 1. administering discipline regardless of who the employee is and 2. ensuring that discipline happens every time a rule or policy has been violated across an organization. Consistency is key when it comes to holding employees accountable and regardless of whether the employee is the best or worst employee, all employees should be held to the same standard when it comes to behavior, policies, and procedures.


4. Impersonal

Direct the discipline against the act, not the person. Focus on the facts and make it clear in the NODA on expectations moving forward.


5. Contact Advisor HR!

We are here to support YOU. We will guide you through every step of the process and will prepare the NODA for you. We want to ensure that you mitigate risk and follow due process; so when it comes to termination, you have taken the proper termination steps that are fair, transparent, and legally compliant.


Proper termination steps are essential to reducing unemployment approvals and will protect the organization from potential legal and financial repercussions. By following due process and reaching out to Advisor HR, we will ensure that terminations are conducted in a fair and effective manner. When these steps are followed, the result will be a reduction in UI benefit charges, a lower SUTA rate, and a more compliance focused workplace culture.

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