Controlling costs, two that most don’t and never knew how!
Rising Costs due to lack of understanding!
dollars or $12.00 per $100.00 in payroll. I had occasion to call on a company
that was paying 9% of payroll on about 80 employees (you usually
only pay on the first $11,000 annual wages per person) depending on which state
you are in. But 80 x $11,000 = $880,000 x 9% = $79,200 per year but that is not
counting on any turnover. Let’s assume a 20% turnover rate so we add 16 more
people at $11,000 or another $176,000 in payroll that is subject to the SUTA
tax or an additional tax bill of $15,840. If you add the two together you get a
total SUTA tax bill of $95,040 per year. The lowest rate possible if they
managed it very well would be a SUTA tax bill of .06% or $6336 per year. Did you have any idea there was that kind of money available to save if you managed your SUTA tax by properly utilizing Human Resources to eliminate claims. You use H.R. processes of proper hiring, background checks, and proper disciplinary process and documentation to stop every Tom, Dick or Harry from receiving unemployment benefits. Don’t hire job jumpers; they only need to work 2 months in most states to draw unemployment benefits if they make over the minimum qualifying wage. When you terminate someone do it for a just cause so that they are not eligible for a claim. Document disciplinary procedures to back up your challenge to a claim, also many people who voluntarily quit will go file for benefits hoping you will not challenge it and they will run up your claims. You must respond promptly every time you receive a letter from the Unemployment office stating that someone has filed a claim, if you miss the deadline they automatically get the claim. Every year you receive a SUTA Rate Determination statement showing your wages and claims for the last 3 years. Your new rate is calculated by a long formula that takes your total wages paid and divides it by claims dollars paid out and has a multiplier for how frequent your claims are. If you let your rate climb up to the high end of the scale it takes 3 years to get it back down. It works a lot like car insurance;
your claims history affects you for 3 years. There is a lot of information on the web about how to manage your SUTA, or you could go in and talk with a case worker at the unemployment office to get trained on how the system works from the employer
side. By the way employees think that they pay for this but they don’t it is
totally on you. Now let’s talk about the other big controllable cost, Workers Compensation insurance! Workers Compensation is calculated as a percent of wages like SUTA but there is a different cost factor for every different job description. The National Council for Compensation Insurance determines annually the rates for every job description based on risks to the job and past years claim frequency. There are some exceptions and caveats to all this rate setting but it would be too complicated to discuss here. The NCCI covers most states and cases. There is a rate for Circus performers, Professional Athletes and Secretaries. I have been told that most underwriters are looking to keep claims under 75% of premiums, so if your claims top that number you are going to get hit. I recently worked with a company of 29 employees who had over 3 million in claims over the last 5 years. One employee had over $500,000 alone in 3 different claims. They had a Mod of 2.6 or Modifier/ multiplier of 2.6 times the going rate for their job descriptions. It was costing them an extra $130,000 per year!!! When your claims get over the correct ratio of premium versus claims costs you risk getting into the Risk Pool. The Risk Pool is for people who no one wants to offer coverage to, so the State sets up a high risk pool that you receive your coverage from. It takes a lot of work to get out of the pool and it costs a lot extra to be in it. Every company has what is called a Modifier along with your premium rate. So if your rate is $5.00 per hundred in wages and your mod is 1.25 you pay $6.25 per $100.00 in wages. Unlike unemployment you pay Workers Compensation premiums on every dollar of wages. IF your Mod is .8 because you have low claims (this is called a positive Mod, or Modifier, think a discount for good behavior) your $5.00 rate would be $4.00
per $100.00 in wages. If you have a lot of claims you should keep a chart and
have a safety committee to review your operations to see if you have some work
hazards that could be modified to reduce claims. You also want to look at
Monday morning claims very closely; some people will get hurt on weekends
playing sports or something else and wait to claim it at work. You must use a First Report of injury form to document the incident listing what happened, when, where, and witnesses. I worked with a client who had over $250,000 in claims per year before setting up a safety committee using people from each department, in 2 years the claims dropped to less than $5,000. You also want to
watch out for people who don’t have health insurance using Workers Compensation
to cover their non work related injuries. Talk to your insurance agent and ask to speak with the Safety Coordinator from your insurance Carrier. Many times they will come out and do a walk thru with you and help you analyze your claims. A well kept secret is that almost every Community College has Federal Funds to teach safety classes for small business free of charge so call and talk with their
Continuing Education Department for help. You will be amazed at what you can save by having good control over your
SUTA tax and your Workers Compensation Insurance premiums. If you don’t know
what your SUTA rate is and what your Workers Comp MOD is you should write it
down and paste in near your desk so you are reminded every day. Very few CPA’s will teach you this information because that is not what they are paid to do, and they don’t have the time and experience to help you. Like Zig Ziglar said “if you are looking for a helping hand, look at the end of your sleeve!” CPA’s generally are so busy adding and subtracting numbers that they don’t have
time to educate the client on what they do or how to make them better for you.
The buck stops with the owner! If you are the owner make sure your employees
know that you’re aware of these costs, and that they are a factor in future
raises. A last side note, I have heard employees say that they paid in and
deserve their own unemployment. Employees don’t as a rule pay in for
unemployment, it is totally funded by the employer and the government!