Minimizing Unemployment Insurance Expenses 

As most business owners and executives are keenly aware, unemployment insurance (UI) tax rates have increased dramatically over the past two years due to the economic downturn that began in 2001.  These high tax rates will most likely continue for the next few years, playing an important role in hiring and business expansion decisions for many businesses.  However, there are effective ways to expand your staff while minimizing UI expenses: consider hiring contractors or hiring permanent staff through a contract-to-direct arrangement.

Background

The Unemployment Insurance Trust Fund is an employer-funded account, created to assist those individuals who are willing and able to work, but are temporarily unable to find employment.  Most states enjoyed surpluses in their UI accounts during the economic boom of the late 1990’s, but the downturn that followed the boom depleted many of these accounts.  In early 2004, as Massachusetts’ UI account became insolvent, the legislature instituted dramatic UI rate hikes, raising the average UI tax on Massachusetts employers by 88% and leaving Massachusetts with the highest UI taxes in the country.  Rhode Island and New Hampshire businesses also faced significant increases, although not quite as severe.

 The Massachusetts UI trust fund is once again solvent; however, it will take years to restore a healthy balance — employers should not expect significant relief for some time.  

Avoiding Higher UI Taxes

There are appealing options to expanding your business without incurring additional UI taxes.  Which option is best for you depends on the specific needs of your business.

Contract Personnel: Hiring contract personnel is an ideal way to staff a special project, whether it be one month in duration or two years.  Or, you may need specific technical expertise for a few months to help your business grow in a new direction.  Hiring contract personnel allows you to completely avoid UI expenses, as you are not the employer.  The contractor is the employee of the staffing firm that placed him/her with you; therefore, the staffing firm is responsible for all payroll taxes, including UI taxes.  When the project is over or when the expertise is no longer needed, the contract ends and there is no effect whatsoever on your future UI rate.

Contract-to-Direct:  Contract-to-direct has become a very popular way to hire permanent staff while minimizing the risk of a hiring mistake.  Contract-to-direct allows you to “try before you buy”, observing a candidate in an on-the-job setting prior to making a decision to offer permanent employment.  During this time, you are not responsible for UI taxes, as the candidate is an employee of the staffing firm. 

If during the contract period you determine that the candidate is not ideal for permanent employment, the contract ends with no negative effect on your future UI rate.  If, on the other hand, you hire an employee directly and later determine that the hire was a mistake, your future UI rate will be negatively affected by your former employee’s unemployment claim.

Triad Engineering Corp has specialized for over 35 years in helping clients fill their technical staffing needs on a contract and contract-to-direct basis.  Triad is locally owned and operated and offers the most personalized service and experienced staff available.  Please contact us at 781-273-1880 or visit our web site www.triad-eng.com for more information.