What is This Thing Called SUTA?

“I hear people talking about their SUTA, what is it?”

“The state just raised my SUTA rate! What can I do?”

“What can I do about SUTA?”

“My Accountant just told me I should consider a PEO because of my SUTA rate increase.”

Have you wondered what this acronym stands for?

• SUTA = State Unemployment Tax Act. Similarly,
• FUTA = Federal Unemployment Tax Act.

It is a tax assessed on employers to fund unemployment benefits. It is often (wrongly) called “Unemployment Insurance” or “SUI.”

The term SUTA is often used to refer to the employer’s SUTA rate, that is, the percent of payroll that is assessed on that particular employer.

Most states start new businesses at an arbitrary base rate, and they stay at that rate until a significant amount of employment history is acquired.

In Florida, for example, a new business is assigned a SUTA rate of 2.7% of payroll for the first 30 to 33 months. After this, the rate may fluctuate up or down based on employer experience. The current maximum in Florida is 5.4%

In contrast, the FUTA rate is a constant 0.8% and does not change per employer.

Both rates have a maximum wage applicability. In Florida, the SUTA rate is only applied to the first $7,000 of each employee’s wages with that employer. (FUTA also only applies to the first $7,000.)

Why is this Important When Considering a PEO?

When an employer turns his employees over to a PEO (formerly known as an Employee Leasing Company) they now fall under the SUTA rate of the PEO.

Obviously, in some cases, this can be beneficial to an employer who has had an unusually bad experience with unemployment. It can also be of great assistance to have a Professional Employer Organization to direct the employee hiring and terminations in a way that limits exposure to unemployment claims.

In any case, transferring the responsibility of the Unemployment Claims from the client company to the PEO makes unemployment claims “somebody else’s problem.”