Page 287 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
• The person customarily works independently from the company
as a separate business.

Twenty-six states use all three elements of this test to determine the sta-
tus of an employee or contractor, while eight use just the first and third.
An important issue is to retain the notice of contribution rate
change that the state unemployment division will mail to every com-
pany at least once a year.The new rate listed in the notice must be used
in the calculation of the state unemployment tax payable, as of the date
given on the notice. If a company outsources its payroll, this notice
should be forwarded to the supplier, which incorporates it into its pay-

roll tax calculations.

Calculating the Unemployment Tax
Contribution Rate
The contribution rate is the percentage tax charged by a state to an
employer to cover its share of the state unemployment insurance fund.

The contribution rate is based on the experience rating, which is essen-

T IPS &T ECHNIQUES

A business that is buying another company may have the opportu-
nity to do so because the acquiree has fallen on hard times, and so
can be purchased for a minimal price. However, if the acquiree has
been laying off staff in the year leading up to the acquisition (quite
likely, if there have been cash shortfalls), the acquirer may find itself
saddled with a very high state unemployment contribution rate in
the upcoming year. The acquirer can avoid this problem by pur-
chasing the assets of the acquiree, rather than the entire business
entity, thereby eliminating the acquiree’s poor experience rating as
tracked by the state unemployment agency.

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