Dealer Insights - January/February 2013 - Strategies for Keeping the Lid on Unemployment Taxes
State-imposed unemployment taxes have skyrocketed since the onset of the recession. While there may be little you can do to reverse this nationwide trend, you can be more thoughtful in the hiring decisions you make at your dealership, so as to avoid future unemployment claims against you.
Unemployment tax rates for employers vary from state to state, both in terms of the amount and how they’re assessed. Your unemployment tax bill depends on several factors, which may include the number of former employees who have filed unemployment claims with the state, the number of current employees and the age of your company. As with many other forms of insurance, typically the more claims made against you, the higher your premiums. Massive layoffs in the last several years have taken their toll on state unemployment trusts. Soaring numbers of unemployment claims during the recession “broke the bank” in many states and forced them to borrow federal funds to compensate unemployed workers. Many states are now struggling to pay principal and interest on those loans, while continuing to make large unemployment payouts. To produce more revenue to meet these obligations, some states have raised their unemployment tax rates, and dealerships are feeling the bite.
Your dealership might be able to influence its unemployment tax payments if certain situations apply. Some states allow you to annually buy down your rate. If it works out for your dealership, this could save you some substantial dollars in unemployment taxes. Also, if you have recently acquired another dealership, it may have a lower established tax rate that you can take advantage of. You may also be able to request the transfer of the previous company’s reserve balance.
Careful future hiring
Even though auto sales are generally picking up across the country, you’re likely taking a conservative approach to adding new staff — and wisely so. And when your need to increase manpower becomes too strong to ignore, continue to move cautiously. Remember, your unemployment payments are based partly on the number of employees who file unemployment claims. You don’t want to hire employees to fill a need now, only to have to lay them off when business slows. A cost-analysis study, which can be performed with the help of your CPA, will enable you to see via black-and-white projections whether increasing your payroll is worth the investment. If it isn’t financially attractive to add staff, there are other options. Your demand for extra staff, for instance, may parallel the peaks and valleys of your dealership’s year. A temporary staffing agency can help you meet those seasonal needs without permanently adding staff, so you can avoid layoffs. Using a temporary agency also is a good way to try out a candidate.
You may be able to do little about the unemployment tax rate your state levies. But you can be careful in hiring additional staff that you may need to release later and who might, in turn, file unemployment claims. Keep in mind that, even if you fire someone for cause, which technically should disqualify them from receiving unemployment, they still might win a claim dispute. Measures like prehiring assessment tests (see the sidebar “Hiring the right people, for starters”) and background checks can increase your odds of hiring long-term employees.
Hiring the right people, for starters
Often it's worth a small financial investment to require job candidates to undergo prehiring assessments to see if they're a good fit for your dealership and the position available. Standardized testing instruments are designed to reveal aspects of an individual's character or psychological makeup that may affect their performance. Well-established assessments include the Myers-Briggs Type Indicator, a personality inventory that categorizes psychological types, and DISC, a group of psychological inventories that cluster certain characteristics into particular behavior styles. Analysis of the test results can tell you, for instance, if the candidate you're considering for a service advisor opening has psychological or behavioral traits that are compatible with the customer-oriented responsibilities of that job.
Dealer Insights - January/February 2013 Issue