SUI Definition (And How to Keep Your SUI Rate Low)




Reviewed by

Janet Berry-Johnson, CPA


March 6, 2020

This article is Tax Professional approved


When you’re running a business, sometimes you’ll take every opportunity you can to cut down on expenses. But in some cases, those savings come with a little extra work. Cutting down on expenses can require some pretty detailed processes—and those processes rarely build themselves.

What's Bench?
Online bookkeeping and tax filing powered by real humans.
Learn more
Friends don’t let friends do their own bookkeeping. Share this article.
Tired of doing your own books?
Try Bench

This article is written by our friends at Gusto.

In this post, we’ll talk about protecting your SUI rate—one surefire way to save your business money right now, and as you grow.

Wait, what is SUI?

Many states tax employers to fund their state unemployment insurance (SUI). The SUI tax rate is specific to a particular business. It’s usually based on:

  1. The base rate set by each state, and
  2. An “experience factor” specific to your business, which is based on the number of employees who have filed for unemployment benefits in the past.

In most cases, the more former employees who have collected unemployment benefits you have, the higher yourSUI tax rate will be.

Calculating SUI tax

To calculate your SUI tax, you multiply your SUI tax by the “wage base.” A wage base means you only pay tax on a set amount of each employee’s wages. For example, New York has a wage base of $10,900. This means a company doing business in New York only pay SUI tax on the first $10,900 of each employee’s wages.

Unlike other payroll taxes like Social Security and Medicare, in most states, the employer is 100% responsible for paying SUI taxes. Only a few states, Alaska, New Jersey, and Pennsylvania, require employees to pay a portion of the SUI tax.

For the SUI tax rates in your state, check with your state’s Department of Labor.

Alrighty then, what’s “protecting the SUI rate”?

Let’s say a business in California pays five employees an average of $55,000 (where the wage base is $7,000) and has a current SUI rate of 6% (California’s lowest SUI rate is 2%). This costs the employer $2,100 per year (5 employees x $7,000 in wages x .06).

Screen Shot 2019-10-22 at 1.06.33 PM

If the business doubles its headcount and we assume everything else stays the same, the SUI cost will increase to $4,200. Now, if this employer improved their practices, it could reduce its SUI rate to 2%, and save almost $3,000 in the process.

These savings will only increase as the business continues to hire more people, and that’s what we mean by “protecting the SUI rate.”

How to protect your SUI rate

You may be surprised to learn just how easily a former employee can establish a successful unemployment claim. The biggest misconception many employers have is that terminating an employee for substandard performance will disqualify the individual from receiving unemployment benefits.

The reality is, in most states, unless the employee’s behavior rises to a level of “misconduct,” they will be deemed eligible for unemployment benefits. That means terminating an employee for “poor performance,” “incompetence,” or “inability to perform the job,” will almost always result in the state unemployment agency deeming the former employee eligible for unemployment benefits, which may adversely affect a business’s SUI rate.

To further complicate things, not only does an employer have to show that the employee’s behavior constitutes misconduct as defined by state law, but they have to prove that the claimant either knew or should have known that they could lose their job as a result of the behavior. To successfully contest unemployment claims and protect your SUI rate, it’s critical to keep documentation that clearly illustrates these points.

So what to do? Here are some best practices for both before and after terminating an employee:


Provide the employee with a written warning regarding the misconduct
Although no law requires notice before termination, doing so may help in defending a potential unemployment claim. Also, if employees have been led to believe that certain disciplinary steps will occur prior to termination (such as verbal or written warnings), the employer should make a good faith attempt to follow those steps, or else risk losing the unemployment claim.

Distribute an employee handbook and obtain signed acknowledgment forms
Employers have a much better chance of successfully defending an unemployment claim if they can cite the policy that was violated. Distributing an employee handbook is an excellent way of demonstrating how employees were made aware of the policy, and the consequences of noncompliance.

Investigate all workplace complaints
In most states, if an employee resigns with “good cause,” they will be eligible for unemployment benefits. If the individual can show that they complained of a serious workplace concern, but the employer took no action to address the allegation or if the employer retaliated somehow against the claimant, the former employee is generally eligible for unemployment benefits.

Remember the “reasonable person” standard
This is a common guideline used when making unemployment decisions. Considering whether a reasonable person would terminate an employee given the circumstances before making the termination decision is a crucial step in the process.

Treat employees fairly and consistently concerning termination decisions
State personnel processing unemployment claims are themselves employees, not employers, and they will have opinions about what they consider fair treatment. It is essential to keep this perspective when terminating employees.


Submit all unemployment-related paperwork on time
If an employer fails to return the state unemployment division’s request for information relating to the reason for the termination or separation, it could be considered a “disinterested party,” and the claimant may automatically receive unemployment benefits. Be sure to keep your address with the state unemployment insurance agency up to date so there are no delays receiving requests for information.

Include documentation that supports your case
This can include: 1) Copies of the signed employee handbook demonstrate that a company rule was violated; 2) Copies of corrective action; 3) Copies of performance reviews that prove that the employee was aware that their job was in jeopardy and didn’t correct the behavior by the agreed upon deadline.

Appeal the decision if you disagree
If you disagree with the initial determination, you have the right to appeal. Simply submit the appeal paperwork on time and request a telephone hearing.

Prepare for the appeal hearing
Don’t waste everyone’s time by showing up with a defense, of “This is a travesty of justice,” or “They’re lying.”

Attend the appeal hearing

There’s no secret formula to protecting the SUI rate. Develop the processes, implement them, and follow them. Do all those things, and you’ll be in good shape.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
Friends don’t let friends do their own bookkeeping. Share this article.

Join over 140,000 fellow entrepreneurs who receive expert advice for their small business finances

Get a regular dose of educational guides and resources curated from the experts at Bench to help you confidently make the right decisions to grow your business. No spam. Unsubscribe at any time.