Owning a small business often feels like you're wearing many hats simultaneously. You're the manager, the marketer, sometimes even the accountant, and then comes payroll. Payroll is one of those tasks every business owner knows is important, but can get tricky when employment-related taxes are thrown in.
One of those taxes that has a direct payroll impact is the State Unemployment Insurance tax. But how does it actually work and what does it mean for small businesses such as your own? Let's dive in.
Think of SUI as an employee safety net. The State Unemployment Insurance program was intended to serve as a safety net for workers who lose their jobs through no fault of their own for a temporary period of time. It's not something that employees pay into, it's strictly an employer's task.
For example, let's say you had to let go of someone due to a downsizing and said worker might be eligible for unemployment benefits, and these benefits are paid from money you've been paying as a part of your payroll. Pretty straightforward, if we put things unlocked.
But here's the catch: Rates, rules and thresholds differ from state to state. So, depending on the location of your business, your costs are likely to be very different from another small business owner across another part of the country.
If you're running a growing business with a handful of employees, you already know that your payroll's taking up a fair share of your budget. Now, with unemployment insurance comes a further cost per employee and you need to factor that in.
Every employer has to pay SUI, but it's not fixed forever. It may often depend on your company's history of unemployment claims. Let's say you've had to lay off, even in the past, there is a chance your rate may be higher than someone who hasn't had to lay off. On the flip side, businesses with stable positions of employment can in some cases avoid higher rates.
Doesn't it just make you wonder, how much control do you really have over this?
At this point, you're probably joining the dots. The sui tax is basically a contribution all employers are required to make to the state to cover unemployment benefits. It doesn't matter if you are a small bakery with five employees, or an agency that is small and just starting out with twenty employees, the responsibility still lies with you.
So, the larger the payroll that you have may grow up, the more careful you will be to plan in advance and keep this tax in mind.
One of the not-so-obvious impacts caused by SUI on small businesses is how it affects hiring decisions. Imagine, you're ready to expand your team. You've factored in salaries, training and equipment in your budget, but have you included payroll taxes such as SUI?
Some owners admit they're past on hiring simply because the added costs made them nervous. Others, in order to avoid these tax obligations, elect to hire freelancers or contractors as opposed to full-time staffers.
Have you ever caught yourself in the same thought? If so, you're not alone. There can be a lot of weight given to these considerations when your small business makes decisions regarding staffing guidance.
So, what can you do as a small-business owner? While you won't be able to avoid SUI completely, there are smart ways to ensure that the effects are manageable:
Wouldn't you agree that it is a lot better to take proactive steps to buy examples than scramble at the last moment?
Here's something many new entrepreneurs don't think about, SUI doesn't just affect the payroll today, it also affects your growth strategy. For example, if the business is growing quickly and you're adding a number of employees, your overall tax liability is increased. If you're not ready for it, this can put pressure on your cash flow and slow down expansion plans.
On the flip side, businesses who are forward thinking may be able to take this knowledge to their advantage. By forecasting payroll costs, including taxes, you're free to make smarter decisions about when you can and can't scale up, how much to keep in reserve, and whether to explore cost-saving opportunities like part-time positions, or outsourcing.
Small business ownership comes with enough sets of challenges, you don't want payroll taxes to sneak up on you. Understanding how unemployment insurance works, planning for the costs, and staying compliant can make all the difference in the world in keeping your operations running smoothly vs. causing you financial headaches.
At the end of the day, it's not just about paying your people when using payroll - it's also about protecting your business. Contrarily, through careful management of SUI, you can side-foot it to what is important, i.e., growing your company, serving your customers, and building the future that you have planned and dreamed.
