Why PEO’s Help in an Uncertain Employment Environment

Updated: February 18, 2011

All small businesses, no matter the state they are located in, are required to pay taxes for unemployment (state unemployment taxes, or SUTA for short). The rates and the maximum amount the business will pay are different depending upon your state's rules. Unfortunately for the employer, these taxes are charged directly to him and cannot be passed on to the employee. The amount charged is calculated based on a percentage of the wage an employee is due, and off the experience rate of your company. Usually the new company will start with a higher rate and can have this adjusted as each year goes on.

However, if the new company experiences layoffs or downsizing, the rate may increase to the maximum amount or cutoff. Each state has different SUTA cutoffs with different minimum and maximum rates. Taxes at this time are reported quarterly and paid directly to the state. So, knowing that small businesses can be adversely affected when losing employees, we would like to show how PEOs can smooth out the cost increase if you happen to find yourself in this position in today's declining economy.

The PEO will work with small businesses as the co-employer of each employee, allowing PEO's to become the employers of record in the state. PEO's can also calculate the state unemployment rate due for the business, in addition to filing and paying the taxes for you. If you have grown your business across state lines, this process is an extremely valuable time saver for you. Finally, and even more so in an uncertain employment environment, PEO's may actually use their own experience rating. This can help as you may have to decrease your costs, but it will not affect the rate you pay through the PEO's agreement.

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