We’ve almost reached the end of the year. We have one final quarter before the new year begins. Most of us are looking at our current books to ensure that we are on track to meet our goals or looking at ways that we might be able to improve performance going into next year. The general outline of our goals probably revolves around cutting expenses, decreasing cost, or increasing sales. However, one area that you probably aren’t focused on is decreasing your payroll cost without cutting employees.

What if I told you that Ohio and a number of other states allow you to decrease your employee cost by buying down your unemployment tax rate and/or combining your tax rates (resulting in a reduced overall rate). We’ve talked about what are unemployment taxes, but how do I save money.

Glad you asked! Unemployment tax rates are calculated annually for each individual business entity based upon the activities of that business. However, if you meet certain criteria, you are able to combine the tax rates and experience of those separate entities into one tax rate shared by the entities for that tax year. This is commonly called a Common Rate Group. In order to be eligible for a common rate group you must meet the following criteria:

  1. Be eligible for an experience rate based on its own individual experience

  2. Have a positive balance on the individual account

  3. Be owned and controlled directly or indirectly by the same interest (i.e. common ownership, management, or control)

If you meet the necessary criteria, you are able to make a request to create this common rate group but must do so by December 31st of the calendar year.

In addition, to allowing a company to combine their unemployment tax rate, Ohio allows a company to “buy-down” their unemployment tax rates.

How does this work?

If your unemployment tax rate is on the edge of being at a lower tax bracket, you can make an additional contribution to your account to get to that lower tax bracket. Now you may ask why would I pay more money to get a reduced rate? The answer is that by making a one-time payment, you can potentially save yourself thousands of dollars over the course of a year. In order, to make this determination a careful analysis of your tax situation should be conducted by December 31st of the calendar year in order to make the election.

Common Rate Groups and Voluntary Contributions do not make senses for every business owner. However, you should have every tool available to you. Don’t assume that the information the state is providing to you is in your best interest. Robinson Legal would be happy to do a free evaluation of your current unemployment tax rate to determine if there are opportunities for tax savings.