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>> Speaker 1: This is chapter five learning objective four
looking at the SUTA laws and rates.
Each employer's rates based upon their experience rating
and new employers pay an additional contribution I mean
an initial contribution rate that's going to apply
for a specific period of time
until they can get some experience
and then they're able to be adjusted.
Some states utilize a reserve ratio formula
to lower the contributions based on low risk of unemployment.
So this is what I was talking
about when you know accountants have a lower risk
of unemployment
than construction workers or car workers.
Non-profits have an option to reimburse the state
for the actual amount
of unemployment benefits paid rather than paying a percentage.
So basically if non-profits have employees
that draw unemployment, the non-profit has to pay for it.
The SUTA dumping prevention acts mandates that states enact laws
to stop businesses from lowering their unemployment rates
through creating new entities.
So some clever people had a high rate because a lot
of their people they were in a high risk area industry,
maybe construction companies
so they would just change the name create a new company
to lower their rates.
So there are acts to prevent that and basically a lot
of the laws that we have are due to litigation
and people trying to get around a law.
The SUTA rate the experience rating it reflects the stability
of the employer's employment history.
So if you have lower unemployment rate you know
as people you know in like I was saying accounting firms,
then they're going to have a lower rate.
The most common formula that's used
to determine the rate is the reserve ratio formula
and I don't really have any slides to show you this but it's
in your textbook, there's a good example how
to calculate this reserve ratio formula.
Once the calculations are done then
if you have a positive reserve ratio positive balance
as a result of this formula being applied, then you're going
to experience a lower tax rate because what it means is
that the employer has built up a balance in reserve
and so what we're talking about here is we're looking
at the total wages paid compared to the unemployment benefits
that have been paid to with regards
to that employer former employees.
So it's sort of like a bank account for each company
where all the SUTA that you pay goes into the bank account
and then all of the unemployment benefits that are paid
from your bank account
which would be former employees withdrawing on that reduces it.
So if you've got more in there than what's been paid
out you've got a balance in reserve, that's what this means.
So you're going to have a lower tax rate.
If you have a negative balance it means
that more unemployment has been paid out than what you have paid
in so you're going to have a higher tax rate
to make up that balance.
Some states require employees to contribute to SUTA
and that money would be withheld
from their paycheck just like the other taxes.
Now some states will reduce the rate
if the employers make voluntary contributions to the state fund
and what this does it increases their reserve account
so they'll end up with a positive balance
and then they'll have a lower tax rate overall for all
of the subsequent wages.
So a lot of employers will do that because in the end putting
in a voluntary contribution the amount
of that contribution will be less
than what their higher tax rate will be on subsequent wages.