SUTA Dumping and Rate Assurance
"SUTA Dumping" is a form of tax avoidance or tax rate manipulation through which employers "dump" higher unemployment taxes by attempting to obtain a lower rate. SUTA dumping involves the manipulation of an employer's unemployment tax rate and/or payroll reporting to owe less in unemployment taxes. DWD is committed to investigating, detecting and preventing this practice and maintains a Rate Assurance Unit for this purpose. It is important to abide by the following to avoid running afoul of the SUTA dumping law:
1. Mandatory Transfers
UI experience account balances must be transferred whenever there is:
- Substantially common ownership, management or control between the parties
- One entity transfers all or part of its trade or business (including its workforce) to another entity
- See Section II of the employer handbook regarding business reorganizations that do not constitute a transfer of trade or business because the newly established entity does not meet the requirement to be a separate employing unit.
2. Prohibited Transfers
A new employer acquiring the trade or business of an existing employer for the sole purpose of qualifying for a lower premium rate is not entitled to the previous owner's UI experience account. This practice results in higher rates for other employers and is not allowed. A new employer premium rate will be assigned. (See Section IV of the employer handbook). Existing businesses are also prohibited from acquiring a different trade or business for the purpose of transferring their workforce to another account with a lower UI experience rating.
3. Penalties for SUTA Dumping
Any employer that knowingly violates or attempts to violate the law regarding SUTA Dumping will be subject to the highest premium rate for the year in which they violated the act and for the following three years. If the employer is already at the highest tax rate or if the amount of the increase is less than 2%, then a penalty of 2% additional contributions will be imposed.
Any person that advises an employer on how to carry out SUTA Dumping is subject to a civil penalty of up to $5,000. This penalty is assessed to non-employers, such as accountants, attorneys, tax advisors and third-party reporting agents that knowingly or recklessly assist or advise an employer in violating the requirements of the Act.
4. Why SUTA Dumping is Harmful
Under the experience rating system, employers pay UI premiums at a rate that is based on the benefit claims filed against their business and the amount of wages paid.
Employers with more employees receiving UI benefits should pay higher premium rates. Employers with fewer employees claiming UI benefits should pay less.
Employers who engage in SUTA Dumping practices (or other tax schemes) to avoid paying their fair share unfairly shift the burden to other employers.
SUTA Dumping is harmful because it:
- Compromises the integrity of the UI system
- Results in an uneven playing field
- Increases rates for all employers
- Results in the UI Trust Fund losing money
5. Rate Assurance Investigation
If an employing unit, or group of employing units, is believed to have:
- Violated the requirement to report the transfer of business operations between related, IC 22-4-11.5-7, or unrelated, IC 22-4-10-6, organizations;
- Established multiple accounts in error; or
- Manipulated their merit rate through the transfer of their workforce or assets;
then a rate assurance investigation may be initiated.
A Rate Assurance investigation helps to ensure that employing units are appropriately setting up their employer accounts and complying with SUTA regulations. If your account is selected for a rate assurance investigation, you will be notified in writing and will be able to personally talk to the individual handling the investigation.
Click here to learn more about Rate Assurance.
To report SUTA Dumping or for additional questions about SUTA Dumping, please contact:
Mail: Indiana Department of Workforce Development
ATTN: Rate Assurance Investigations
10 North Senate Avenue RM SE 202
Indianapolis, IN 46204-2277