Because staffing agencies frequently hire large numbers of employees, unemployment taxes can represent a significant, and often underestimated, cost. Federal Unemployment Tax Act (FUTA) taxes fund federal unemployment programs, while State Unemployment Tax Act (SUTA) taxes fund state unemployment benefits. These taxes are generally borne entirely by the employer, not the employee, which makes them easy to overlook until a rate notice arrives.
Your state unemployment tax rate isn't fixed. It can rise if former employees successfully claim unemployment benefits, and staffing agencies, given typically higher turnover, often see larger swings in their rate than other employers. Over time, an elevated SUTA rate becomes a real, recurring cost of doing business.
Understanding your FUTA and SUTA obligations, and actively managing the factors that affect your rate, helps staffing agencies budget appropriately and avoid surprises when tax notices arrive.