You might pay a lot less later by paying a little more now

by Larry Clark

Deliberately overpaying your unemployment taxes by as little as one dollar could save you thousands!  This is true in the twenty-three states that allow employers to make voluntary contributions for the purpose of improving their experience rating(s).  Employer Advocates (as a normal part of our service) will help you determine the size of the voluntary contribution needed to reduce your tax rate.  In most years, the sum employers are required to pay to qualify for a lower rate is far more than any savings that can be achieved by making the payment.  On the other hand, the calculation must be made each year because in those instances when your tax rate happens to be close to the dividing line between rates, you might reduce your rate with a small investment.

In those states that use reserve ratio formulas, your rate is based upon the ratio of your average payroll to your reserve balance.  The voluntary contribution is calculated to increase your reserve sufficiently to qualify you for the next lower rate.

In some benefit ratio states, voluntary contributions are not used to add to the amount of contributions paid; rather, they are offset against benefits charged to the employer's account.  Depending upon state law, the amount that an employer can contribute may be limited to the sum of charges made against your account during the most recent charge period.  Other states may have different limitations on the amount of voluntary contributions and/or on the number of lower tax rate increments an employer may buy.

Employers that are experiencing rapid growth in the number of employees may benefit by making larger voluntary contributions, as the lower rate will be paid on higher payroll during the following year.  Accordingly, it is necessary for us to know when your organization is projecting greater than normal payroll flucruation for us to accurately project the potential savings.

It is important that the voluntary contribution be carefully computed, as most states will not refund any extra.  Since credit against the federal tax is given only for contributions that employers are required to make, these voluntary payments may not be credited against the federal (FUTA) tax.

States require that voluntary contributions be received by a specified date in order to be used in computing rates.  Refer to your state's rules for the various dates relating to voluntary contributions.

The option of making voluntary contributions creates an opportunity to pay more, so that you will be able to pay less over the next year.

Larry Clark is a principle member of Employer Advocates LLC, and has been in the unemployment cost control industry for 35 years.

Disclaimer:  The information contained in the examples given on this page is general in nature and is not intended as legal advice.  There are no guarantees that a particular state unemployment adjudicator will rule as others have in the cited examples.  Individuals seeking legal advice concerning the handling of similar matters should consult with their attorney, rather than relying upon the information given.

The purpose of this document is to educate clients and potential clients about unemployment compensation. While some effort has been made to address the many differences in laws and procedures in the 53 different jurisdictions (each of the fifty states plus Puerto Rico, Washington D.C. and the Virgin Islands), the primary purpose of this presentation is to review some basic principles shared by many jurisdictions.