Small Business Take a Stand to Reduce FUTA Payroll Tax Cost

Our payroll services clients – and all the business owners in Indiana – are paying more than the norm according to the Federal Unemployment Tax Act (FUTA). In fact, as was explained in an earlier post, this year businesses will pay 2.1% of the first $7,000 EACH employee earns. The norm is approximately .6%!

What is the difference in your payroll expense?

$7,000 * 0.6% = $42.00

 — That’s the usual amount employers would pay annually on each of their employees’ wages.

$7,000 * 2.1% = $147.00

– That’s the amount Indiana businesses will have to pay on behalf of their employees in 2014.

Yes, that’s a difference of $105 PER EMPLOYEE. If you have 10 employees, that’s an extra $1,050 in taxes out of the budget for your workplace.

Some might say that’s not a big deal. But think of this situation:

There are many industries with a high turnover rate like retail, restaurants, and service industries like lawn care. When new employees start, the $7,000 FUTA requirement starts as well. So the entrepreneur may have 40 employees over the course of a year, not just the 10 full-time positions. So multiply that $1,050 times 4 and it becomes a significant expense.

It’s a great leap for employers to hire employees. There is a level of commitment to those individuals that their jobs are secure. When payroll taxes (in addition to other expenses) continue to rise, the burden on small business owners can be daunting. The Payroll Department sees it happening every day as we provide payroll services and talk with owners.

So what can a small business owner do?

This increase in payroll taxes to meet FUTA is avoidable. Not for the moment, nor for the individual entrepreneur. But there is something the leadership in each small business can do.

You can urge Indiana state leadership to resolve the issue. Let me explain:

The state of Indiana borrowed money from the Federal Unemployment Trust Fund to meet the unemployment claims several years ago. If loans remain outstanding for two or more consecutive years, the credit (usually 5.4%) toward the standard tax rate of 6%, is reduced by 0.3% EACH YEAR UNTIL THE LOANS ARE PAID. You can see how many years Indiana has not repaid the loans, can’t you? Since business owners are now paying 2.1% instead of 0.6%.

And, guess what the rate will be for 2015 if the loans are not repaid – yes – 2.4% – another $21 per employee… If that happens, what can your employment promises look like in the future?

Contact Indiana state leadership like Greg Steuerwald, Pete Miller and Brian Bosma. Urge them to support small business owners by repaying the loans to get the credit for FUTA back to the 0.6%.

The Payroll Department is a small business, and we have to comply with FUTA and the payroll taxes, too. We see how employers are impacted because we provide so many with payroll services. That’s why we want all our clients and other businesses to know they do have an opportunity to make a difference. Send an email, make a call. We might face a better 2015 for our businesses if we all make the effort.

-Teresa Ray, Owner, the Payroll Department

Posted in: Payroll, Payroll Taxes, Rules, Regulations and Laws

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