So I’ve been in the cleaning business for nearly 12 years and I’m ashamed to say that I just learned how cleaner turnover affects the amount of unemployment tax we pay. I had naively assumed each employee had a certain tax associated with their pay and this was fixed. Sure, the rate could go up or down, but I never made the connection with turnover. But when I ran the numbers, I realized that our company (which has over 400 employees) could save nearly $170,000 annually if we eliminated our turnover. Let me explain.
When calculating your unemployment taxes, you pay a portion to the federal government and a portion to your state. Both of these are taxes paid by the employer. The federal tax is 6% of the first $7,000 in wages earned by the employee. You pay nothing for any wages after that. The state unemployment tax varies by state, but for the sake of argument, let’s assume a rate of 1% on the first $7,000 of employee wages. So in total, you pay $490 in taxes for the first $7,000 in employee wages PER EMPLOYEE.
Assuming a company retains its employees for an average of 6 months, you are paying that $490 in taxes twice for any given position. So for a company like ours that has 400 employees working at any given time, we would on average pay $392,000 in unemployment taxes annually. If our retention increased to one year per employee, we would save $196,000 in taxes annually!
As you can imagine, this put turnover into a whole new light for me. Not only does turnover add stress to management, threaten customer stability, and increase admin expenses, it can drastically increase your tax burden. You should be able to model some different turnover scenarios at your company to understand how lowering turnover could lower your tax burden. You may be shocked at the results.
Our BSC Mastermind Group recently hosted a webinar discussing the very topic with a tenured HR Manager in the industry. If you would like access to this webinar, along with over 50 hours of other training materials, check out our mastermind group. Here is the link.