Employers found avoiding full share of state unemployment taxes

AUGUST 02, 2005 - Michigan's unemployment insurance program is recovering approximately $55,500 in unpaid taxes, penalties and interest from three employers who failed to report their full share of state unemployment taxes.

"These three employers have all reached payment agreements with the state's Unemployment Insurance Agency (UIA) to pay the agency what they owe," David Plawecki, a deputy director with Michigan's Department of Labor & Economic Growth, reported.

Plawecki said all three employers had engaged in the practice of SUTA (state unemployment tax act) Dumping to avoid paying some of their unemployment taxes.

"SUTA Dumping involves the manipulation of an employer's unemployment tax rate and/or payroll reporting to owe less in unemployment taxes," he explained.  "Unemployment taxes are based primarily on the employer's own experience and can widely vary from $5.40 to $927 per employee annually."

Plawecki also pointed out that a frequent consequence of SUTA Dumping is the nonpayment of existing unemployment benefit charges.

"When employers SUTA dump, they move employees from their high-rate tax accounts to new lower-rated accounts," he said.  "In the process, the accrued charges in the old accounts are left behind and are not picked up by the new accounts.  These unpaid charges are not paid by the employer who incurred the charges, but instead are spread among all employers."

The three unrelated SUTA Dumping cases involve a Detroit area landscaping firm, a Canadian computer technology firm with a Michigan operation and a western Michigan agricultural business.

The landscaping firm has agreed to pay UIA about $10,000 in unpaid taxes, penalties and interest.  The firm had set up two accounts with the agency and would periodically shift its employees between the two accounts to pay less in unemployment taxes.

The computer technology firm was recently purchased by a Canadian business, which established a new employer tax account with the agency and transferred the technology firm's employees to the new account and a new lower unemployment tax rate.  The firm paid more than $28,500 in unemployment taxes, penalties and interest. 

The agricultural business established a new employer account and, after a period of time, moved some employees to the low new business tax rate.  The agency recovered nearly $17,000 in unpaid unemployment taxes, penalties and interest.

These three cases were brought to the agency's attention by tips, UIA Director Sharon Bommarito noted.

"We have established a special SUTA Unit in our Tax Office to investigate possible cases," she said.  "We have also trained our field auditors and fraud investigators to be on the alert for likely instances of SUTA Dumping.  In addition, we will soon be using a special software program developed by the U.S. Department of Labor to help in identifying potential SUTA Dumping cases."

Bommarito stated that maintaining the integrity of Michigan's unemployment insurance program is a key focus for the agency.

"We are aggressively pursuing any and all efforts to defraud the UI program," she said.  "Only by enforcing the program's integrity can we help maintain solvency within the UI trust fund and ensure that monies are available to assist those who need and are entitled to unemployment benefits.  Our enforcement efforts also make certain that Michigan employers who are paying their fair share of state unemployment taxes don't have to pick up the cost of those employers avoiding the full amount of their UI taxes."