Lower your UI rates legally.

• Author: Ascierto, Jerry
• Position: Unemployment insurance

Dumping. It's an age-old practice.

Before the days of regular garbage pick up, farmers used to dump their unwanted junk in fields and ravines behind their barns. In these rusty trash heaps, much would decompose, while the old cars and tractor parts would just create an unsightly mess. Thus when that great friend of the urban dweller, the sanitation worker came along, signs started sprouting up in the country and outside factories--No Dumping.

Given a better budget situation in California, the Employment Development Department would plaster "No Dumping" signs at businesses statewide to help build awareness and curb the illegal practice of state unemployment tax avoidance, or SUTA dumping.

Businesses and their advisers engage in SUTA dumping to illegally reduce unemployment insurance rates. SUTA dumping involves businesses transferring large blocks of payroll to new or different account numbers that enjoy more favorable UI rates. The EDD estimates that underpayments to California's Unemployment Insurance Fund due to SUTA dumping are in excess of $110 million.

"And that's not the full extent of it," says Richard Curry, division chief for the EDD's Field Audit and Compliance Division. "There are a lot of businesses that have manipulated their unemployment rate which I'm sure we have not addressed at this point. The $110 million is just a tip of the iceberg."

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The most common scheme "is to simply try and register and obtain a new account number," says Curry, "These businesses conveniently avoid providing all the necessary information so that we don't know there is a predecessor with a history."

According to the experts, the best way to keep UI rates down is to simply maintain a stable workforce. That can be a challenge for accountants who often rely on seasonal workers during busy times. Firms that experience high turnover, large fluctuations in payroll or file and pay their taxes late typically have higher UI rates.

Given the inevitability of work force fluctuation, there are various tactics employers can use to help keep their UI rates low, many of which are generally unknown or often go unexplored.

KEEPING RESERVE ACCOUNTS HEALTHY

The reserve account is a book account that tracks UI contributions an employer pays as well as the benefit charges that are paid out to employees who have been laid off. An employer's UI rate is based upon the ratio between what's paid in and what's paid out of the reserve account. "The more positive your reserve account, the more benefit you'll get in terms of a lower rate," Curry says.

Basically, do everything you can to avoid laying off employees. Work...