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Federal Unemployment Tax (FUTA) Accrual CFO Insight: You may (or may not) know...

California is in credit reduction with respect to FUTA. What this means is that the effective FUTA rate for CA employers is 2.4%. The payroll companies only take it out at .6%, then you get a "big" bill on the annual filing. In dollar terms this is $105 per employee (assuming they made at least $7,000).

I like to suggest for clients who have more than a few employees (remember this is total employees, not just current head count), we should accrue the delta. The easiest way to do this is to:

  1. take the most recent YTD register,
  2. download to excel,
  3. take the lesser of YTD earnings or $7,000 and multiply by .015 (1.5%), this is the accrual at that point in time.

As a reminder, we  also advise clients that adding staff later in the year can be relatively expensive as you will pay SUI/FUTA and likely have a lot of holiday pay, etc.  The combined SUI/FUTA in CA can be as high as $602 per employee per calendar year.

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Author

Scott Palka
CFA CPA CMA MBA, Pro Back Office Partner/Consulting CFO
Scott holds a Master of Business Administration from the University of Denver’s Daniels School of Business, a Bachelors’ of Science, with honors, from the University of Illinois, and an Associate of Science in Chemical Technology from the College of Lake County. Scott is a Chartered Financial Analyst, a Certified Management Accountant, and a Certified Public Accountant. During his career, Scott has led financings from $1 million to $370 million, provided merger & divestiture analysis, deal structure and execution, led several major financial and operational system implementations, and put six sigma process improvements into action. Scott has 4 kids and loves spending time with his family. He is an enthusiastic cyclist who rides for both fun and charity.

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