In this week’s 21 Hats Podcast, Paul Downs, Dana White, and Jay Goltz talked about the unemployment contribution rate—the rate that individual business owners pay to their states to cover unemployment compensation. This rate happens to be something individual owners have some control over if they manage their employees well.
And Paul, Dana, and Jay offered some tips. Jay, for example, recounted the four steps he used to go from a very high rate (“I was a revolving door”) to a very low rate, which he says saves him more than $100,000 a year on his 125 employees: 1) he got more careful about who he hires 2) he uses a probationary period to “unhire” employees who aren’t cutting it 3) he and his team manages assertively so that employees know where they stand 4) they document everything. (Here’s a link to the podcast episode if you want to hear the entire discussion.)
But as Jay, Paul, and Dana emphasize, the rules vary by state. And there are other factors—such as whether the overall economy is performing well. Here’s how Jim Kalb, founder and president of San Diego-based Triad Components Group, responded to the conversation:
“Just finished the latest episode and had to share our situation (which is different than the panelists this week). First, here in CA, a company is ranked from A+ to F+. This grade corresponds to a rate that a company will pay into the state unemployment fund which ranges from 1.5 percent to 6.2 percent. The assigned rate is then applied to the first $7,000 of each employee's wages that year. Therefore, if you pay the lowest rate, the business will pay $105 / year and at the highest rate it will be $434 /year for each employee.
“I currently have 15 employees in CA (plus a 2 others in other states). My current rating is F+ meaning I pay $434 per employee per year or $6,510 total. Since I’m already at the max rate, I truly don’t care whether someone leaves my company (for whatever reason) and files for unemployment. It’s not going to change my rates for a decade or so (long after I exit my company). I just look at the $6,510 that I pay to the state each year simply as a “cost of doing business” in CA—and never worry about fighting with an ex-employee over who’s fault it was that they left us. Just another perspective.”
What have you learned about managing your unemployment contribution rate in your state?
I feel like such an idiot for never even thinking about this. Thanks for bringing it to my attention everybody. Then again, my company has always had extremely low turnover so maybe it's never been a big enough cost to get my attention?
I don't think about it too much. Losing an employee is hard enough. I probably care about it more past the 20+ mark. Also each state has way different degrees for calculating the unemployment insurance rate for employers. Reference: https://oui.doleta.gov/unemploy/docs/aetr-2020.pdf
Sure no problem. As the generation that grew up on google, you'd be surprised what you find now a days with the right google fu. Although I am a little more aware of state to state business taxation differences because we are considering a move out of California. We are a software/consulting business so we could really be anywhere. Born and raised in California, but having a forest outside the window to stare at is something I really want, others are moving because of perceived cost differences between states. So it is important to really run the numbers.
I really wish there was a good calculator where you could plugin your basic P&L information and it spit out a different net total tax burden for a business economic unit (owner+entity). Assuming the same P&L/structure per state. Maybe if I get tipsy enough I'll build that calculator/site.
Thanks Israel! I have been speaking about this topic for years, and I have never been able to find a chart like this. I would encourage every business owner to at least know how the cost is calculated in their state. Much to my surprise, it varies dramatically. Then you can make an intelligent decision as to whether it is worth your time and energy to manage it.
I feel like such an idiot for never even thinking about this. Thanks for bringing it to my attention everybody. Then again, my company has always had extremely low turnover so maybe it's never been a big enough cost to get my attention?
I don't think about it too much. Losing an employee is hard enough. I probably care about it more past the 20+ mark. Also each state has way different degrees for calculating the unemployment insurance rate for employers. Reference: https://oui.doleta.gov/unemploy/docs/aetr-2020.pdf
Sure no problem. As the generation that grew up on google, you'd be surprised what you find now a days with the right google fu. Although I am a little more aware of state to state business taxation differences because we are considering a move out of California. We are a software/consulting business so we could really be anywhere. Born and raised in California, but having a forest outside the window to stare at is something I really want, others are moving because of perceived cost differences between states. So it is important to really run the numbers.
I really wish there was a good calculator where you could plugin your basic P&L information and it spit out a different net total tax burden for a business economic unit (owner+entity). Assuming the same P&L/structure per state. Maybe if I get tipsy enough I'll build that calculator/site.
Thanks Israel! I have been speaking about this topic for years, and I have never been able to find a chart like this. I would encourage every business owner to at least know how the cost is calculated in their state. Much to my surprise, it varies dramatically. Then you can make an intelligent decision as to whether it is worth your time and energy to manage it.