Small businesses have no shortage of items to check off their initial to-do list. The journey begins once they have incorporated or formed an LLC. Then, they must look into registering trademarks, obtaining employer identification numbers (EINs), and getting relevant business licenses. Filing for state unemployment insurance might be a little further down that list, but that doesn’t mean small businesses should put off obtaining it.
However, if you don’t understand why businesses needs state unemployment insurance you might be less inclined to prioritize its filing. Let’s take a closer look at how SUI aids to small business growth.
What Is State Unemployment Insurance (SUI)?
Do you plan to hire employees to work for your business? Have you already hired employees at your profitable startup? Then you’ll need to file for state unemployment insurance, ASAP.
State unemployment insurance (often abbreviated as SUI) is an employer-funded tax program. SUI works to protect workers that find themselves involuntarily employed. Some examples of involuntary employment include the following scenarios:
- Being laid off.
- Being fired for reasons other than misconduct.
- Being let go from a position due to health or personal problems.
Generally, the worker is at no fault for this type of employment. As the worker looks for new jobs, SUI provides them with short-term benefits through unemployment compensation.
Who Pays For Unemployment Insurance?
Earlier, I mentioned profitable businesses that plan to hire or have hired employees need to file for SUI withholding. Employers that have paid an employee more than $300 in wages are responsible for paying their state unemployment insurance.
It’s also not possible to avoid making these payments. Employers must submit their tax reports or tax and wage reports on a quarterly basis. What if your business has no paid employees during that quarter? You’re still required to submit the documents, and pay unemployment taxes on the employee’s state wages.
Do Self-Employed Entrepreneurs Need SUI?
Good question! Self-employed workers that have incorporated as a corporation or formed an LLC may pay themselves as an employee of the business. Others, like sole proprietors, may consider purchasing unemployment insurance as an additional safety net.
It’s recommended that you check in with your local Secretary of State before making any snap decisions. You can ask questions and learn more about the different laws related to the program.
How Much Will This Cost?
Paying for state unemployment insurance is not a one-size-fits-all situation across every state. SUI is run on a hybrid state-federal system where rates and maximum taxable wages are subject to change yearly. What employers pay in SUI withholding this year may not be the exact same as it was last year.
However, there is generally a state maximum wage up to which employers pay unemployment insurance. While they’ll report the full amount the employee made in their tax and wage reports, they will not need to exceed payments past that mark.
Because rates do fluctuate each year, it may be difficult to calculate rates for unemployment insurance. If you find this to be the case with your business, check in with the state for more information on their rate calculation process.
Should You Do SUI Withholding Yourself?
It is possible that entrepreneurs can maintain their own SUI withholding. More often than not, however, they tend to utilize the assistance of a third party filing service. They may choose this option based on the following reasons:
- Maintaining SUI administration is a big responsibility. If you fail to maintain paperwork or respond to unemployment claims on time, your business could face expensive penalties.
- SUI withholding is a time consuming process to keep up with in addition to day-to-day responsibilities.
- Businesses that have frequent unemployment claims filed and associated with their companies face an increased tax rate. This could make for more complicated paperwork — and even more time and energy spent on it.
Luckily, there are plenty of professionals that can assist entrepreneurs with SUI filing services. Best of all, when you work with a professional you maintain a bit of peace of mind. Your business has not fallen out of compliance, and is on top of it when it comes to maintaining unemployment insurance.
Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.