HR Management & Compliance

Short Takes: SUTA Dumping

We’re transferring a number of employees between entities, and someone warned me about “SUTA dumping.” What is that?


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“SUTA (State Unemployment Tax Act) dumping” refers to a tax evasion scheme that some entities have used to try to reduce their unemployment insurance (UI) payments. Briefly, the entity that is trying to pay lower UI taxes forms a “shell company” that qualifies for a low UI tax rate. After the low rate is established for the shell company, payroll from another entity with a high UI tax rate is transferred over to the shell com-pany, thus qualifying for the shell’s lower UI rate. The old entity with the higher rate is then “dumped.” The scheme’s effect is that other employers pick up the costs. Federal law, passed in 2004, requires states to enact laws addressing SUTA dumping, and California’s law became effective in 2005. Among other financial penalties, California employers found guilty of SUTA dumping pay at the highest UI rate plus 2 percent.

 

CELA Editors