Everybody’s under more stress these days. Payroll tax problems can contribute to stress … but it doesn’t have to be that way. In one of our site’s most widely read blogs from 2019, we show you what payroll pitfalls to look out for … and the best practices to avoid them.
Success in the payroll industry comes down to the details.
Whether you’ve got 50 clients or 500, trouble is never more than an overlooked detail away.
And few details are as troublesome as the complex mix of regulations, laws and jurisdictions that make up the requirements around state unemployment insurance (SUI) taxes.
When it comes to compliance with SUI requirements, it’s a wonder that payroll managers get any sleep at all.
"When it comes to compliance with SUI requirements, it’s a wonder that payroll managers get any sleep at all."
Among other challenges, SUI rates, regulations and deadlines are not only different from state to state, they're also subject to a formula that takes an individual employer’s unemployment experience (along with other factors) into account. It’s a formula with many moving parts and they change every year - and not all at the same time.
States that borrow money from the federal government to help meet their unemployment benefit burden and have outstanding loan balances for two consecutive years have another round of calculations to apply that result in higher unemployment taxes. It’s a category that applied to California employers until December 2018.
“When you manage a multistate workforce or a multistate client base, it can be a challenge making sure that all of the rates are up-to-date in time to file your first quarter return because of the way that each state manages it,” says Summer Poletti, Payroll Tax Management’s vice president of sales. “It can be chaotic.”
Sleepless Over SUI? Here's Why
Gregory Shine, business development manager at Symmetry Software, a PTM partner and payroll technology solution provider, agrees.
“This is the kind of thing that keeps payroll managers up at night,” says Shine.
Poletti and Shine describe a variety of complex SUI scenarios that can make payroll managers want to pull their hair out – and eager to outsource the tax side of the process to specialists. Here are a few examples:
- Missed Deadlines: Failing to keep up with deadlines can also lead to penalties. While most SUI rate changes occur in January, a handful of states make the change in July. And those can be retroactive back to the beginning of the year. Either way it can be a challenge to get all of the rates updated in time to file an accurate quarterly return. It’s a challenge you want to meet, though: agencies often put heftier fines on underpayments than they do on errored returns.
- Missed Notifications: Failing to respond to a state’s inquiry can also cause problems, especially because not all states send notices. A few have created portals and require you to log in for news and announcements. When you’re juggling compliance standards for multiple states, it can be easy to lose track. Unfortunately, that’s not a valid excuse.
- Mergers and Acquisitions: Some businesses get into trouble when an acquisition or merger combines companies with different SUI rates. The conservative approach calls for defaulting to the higher rate. Some companies opt to pay the lower rate, or they restructure the merger in an attempt to keep the taxes separate. But an error here can be expensive, leading to allegations of so-called “SUI dumping” which can bring steep penalties and fines.
- Nexus: Businesses can find themselves on the wrong side of state regulators by not recognizing when work crosses state lines in a way that triggers SUI obligations in a new state. It could be the result of a new hire. Or it can be triggered by doing temporary work in a new jurisdiction. A film company, for example, can trigger SUI obligations when it applies for a permit to film in a state where it doesn’t otherwise do business. “The minute you’ve incurred nexus or exposure, you may very likely have obligations,” Shine says. It’s also a common scenario for the construction industry, consultants and professional athletes, who travel to provide work or services in other states.
- Insufficient Expertise: Keeping up with the knowledge you need to navigate multistate payroll tax compliance isn't easy. Individual SUI tax calculations are a science in themselves, fluctuating based on how long a company has been in business, the amount of unemployment insurance that has been paid out to workers, even how much employees are paid. States can add extra fees to defray high unemployment rates. “Every state has different criteria,” says Shine. “The states have all kinds of free rein to do what they want.”
"Agencies often put heftier fines on underpayments than they do on errored returns."
Best Practices for Avoiding Payroll Pitfalls
It’s a lot to keep up with, but with the right technology, you can take a lot of the work out of the process. A sophisticated geocode system like the one that Symmetry’s Payroll Point tool uses can pinpoint the exact jurisdiction for determining when and where local taxes are incurred, in addition to determining the applicability of other local workplace regulations.
PTM software has the capability to automate SUI rate exchanges in bulk, processing all of the rate exchanges for a batch of companies in one step. This can be an enormous efficiency for payroll providers or employers too small to participate in a bulk exchange on their own.
Expertise can yield additional advantages. Voluntary contributions – in advance of a work stoppage, for example – may help individual clients reduce their SUI rates. A pre-merger or pre-acquisition analysis can help you avoid any errors around applying the wrong SUI rate after the fact.
Don't Lose Sleep Over Multistate and SUI Tax Challenges
When you manage a multistate workforce or multistate clients, keeping up with payroll tax challenges can feel overwhelming. Third-party expertise can end the chaos and leave you confident that your processes are accurate, up-to-date and won’t expose you to the threat of penalties, fines or unhappy clients.
At Payroll Tax Management, we have deep expertise in managing the complications of multistate payroll tax compliance for clients across 11,000 taxing jurisdictions. And like our partner Symmetry Software, we are committed to providing solutions that make things easier for our payroll industry clients.
To learn more about how we can help take the worry and work out of multistate payroll tax and SUI compliance, give us a call or click on the link below.