Fair is fair—
Stop SUTA dumping

by Larry Meyer
MRA Chairman and CEO

Have you noticed the news stories about efforts in Lansing to stop an unethical practice called SUTA dumping in Michigan? It’s a topic not a lot of people understand—if you brushed it off as another boring and complex case of corporate cheating, figuring it doesn’t impact you, it’s understandable.

The truth is, SUTA dumping is a fraud perpetrated on all honest business owners. I had the opportunity to testify before the Senate committee investigating the issue, and I expressed the retail industry’s concern over this pressing issue.

SUTA (State Unemployment Tax Act) dumping is a name commonly used to describe a practice used by some companies to avoid paying their fair share of unemployment insurance taxes.

They manage this by playing shell games with their employees, shuffling them to another firm just before layoffs or using any one of many other tricks intended to hide their true layoff figures and obtain an artificially low experience rating.

The experience-rating system is vital to a fair unemployment insurance (UI) system. Experience rating charges more tax to businesses with high claims (layoffs) and less tax to those with few layoffs.

All of us must pay more into the Unemployment Insurance Trust Fund because a few unscrupulous companies, together with some equally unprincipled Professional Employer Organizations, found a loophole and are now driving a Mack Truck through it to evade UI taxes.

SUTA dumping is a national problem. In fact, Congress passed, and the president signed, legislation in August 2004 requiring all states to amend their unemployment insurance laws to close loopholes that some employers are using to engage in SUTA dumping.

SUTA dumping threatens the fairness of our UI system. The unethical businesses who engage in it are not just cheating the government, they are cheating other businesses.

By robbing the trust fund of necessary financing, SUTA dumping hurts all other businesses that must make up the shortfall.

In fixing the problem, state government should not overstep its bounds in this area. While we support adequate disclosure of business information—without being burdensome or overreaching—to accurately determine appropriate UI rates, the state should not go beyond what’s necessary to fix the problem.

But there’s also danger in not going far enough, which would be enacting a so-called “solution” that doesn’t get the job done. The best solution will be one that doesn’t just meet the minimum requirements of federal mandates, but is comprehensive enough to solve this problem now, completely, so that the overwhelming majority of employers who are paying their correct UI taxes are not adversely impacted in the future.

I was glad to hear Governor Granholm announce that SUTA dumping is a high priority for her administration. The state and businesses that play by the rules cannot afford loopholes that legitimize SUTA dumping in any form.