8 Tips for Containing Unemployment Taxes
Unemployment tax rates for employers vary from state to state. Your unemployment tax bill may be influenced by the number of former employees who’ve filed unemployment claims with the state, the number of your current employees and your dealership’s age. Typically, the more claims made against your dealership, the higher your premiums climb.
Soaring numbers of unemployment claims during the last recession exhausted unemployment trusts in many states and forced them to borrow federal funds to compensate unemployed workers. To produce more revenue to meet their loan obligations, some states raised their unemployment tax rates, and dealerships have felt the bite.
That being said, there are several best practices you can follow to keep the lid on employment taxes:
1. Buy down your unemployment tax rate if your state allows it. Your dealership might be able to influence its unemployment tax payments if certain situations apply. Some states allow you to annually buy down your rate. If it works out for your dealership, this could save you substantial dollars in unemployment taxes.
2. Hire new staff conservatively. Even though auto sales have generally picked up across the country, you’re likely taking a conservative approach to adding new staff — and wisely so. And when your need to increase manpower becomes too strong to ignore, continue to move cautiously. Remember, your unemployment payments are based partly on the number of employees who file unemployment claims. You don’t want to hire employees to fill a need now, only to have to lay them off when business slows.
3. Arrange a cost-analysis study. A cost-analysis study, which can be performed with the help of your CPA, will enable you to see via black-and-white projections whether increasing your payroll is worth the investment. If it isn’t financially attractive to add staff, consider other options.
4. Use a temporary staffing agency instead of adding staff. Your demand for extra staff may parallel the peaks and valleys of your dealership’s year. A temporary staffing agency can help you meet those seasonal needs without permanently adding staff, so you can avoid layoffs. Using a temporary agency is also a good way to try out a candidate.
5. Assess candidates before hiring them. Often it’s worth a small financial investment to require job candidates to undergo prehiring assessments to see if they’re the right match for your dealership and the position available. Standardized testing instruments are designed to reveal aspects of an individual’s character or psychological makeup that may affect their performance. Well-established assessments include the Myers-Briggs Type Indicator, a personality inventory that categorizes psychological types, and DISC, a group of psychological inventories that cluster certain characteristics into particular behavior styles. Analysis of the test results can tell you, for instance, if the candidate you’re considering for a service advisor opening has psychological or behavioral traits that are compatible with the customer-oriented responsibilities of that job.
6. Train for success. The Society for Human Resource Management states that many unemployment insurance claimants are awarded benefits despite employer assertions that the employee failed to perform adequately. That’s because the hearing officer concluded the employer hadn’t provided the employee with enough training to succeed in the position.
7. Handle terminations thoughtfully. If you must terminate an employee, consider giving him or her a severance payment as well as offering outplacement benefits. Severance pay may reduce or delay the start of unemployment insurance benefits. Effective outplacement services may hasten the end of unemployment insurance benefits, because the claimant has found a new job.
8. Leverage a new dealership acquisition. If you’ve recently acquired another dealership, it may have a lower established tax rate that you can use instead of the tax rate that’s been set for your existing dealership. You also may be able to request the transfer of the previous company’s unemployment reserve fund balance.