What is SUTA dumping?

SUTA dumping refers to the practice of shifting employees between different companies or entities to take advantage of different unemployment tax rates, thereby reducing the overall unemployment insurance tax burden. Businesses may transfer employees to a newly formed or low-turnover entity that has a lower experience rating for unemployment claims, resulting in lower tax rates.

This practice is deemed illegal as it undermines the integrity of the unemployment insurance system, which is designed to provide support to those who have lost their jobs. By engaging in SUTA dumping, companies can artificially lower their tax obligations while potentially placing undue pressure on other employers who comply with fair employment practices.

Understanding SUTA dumping is crucial for contractors and business owners to ensure compliance with unemployment tax laws and avoid penalties associated with manipulating employment records or misclassifying workers.