Statutory Costs of Being an Employer

There are a variety of costs incurred by the business owner. These costs are inherent to operating a business as an employer and are thus passed onto the Professional Employee Leasing Organization (PEO) client within the costs of a PEO arrangement.

Federal Insurance Contributions Act (FICA)

The FICA tax is imposed upon employees by the federal government and the respective employer is obligated to withhold these funds from the employee and match the amount withheld. This cost is not born by the Professional Employee Leasing Organization (PEO) but rather is passed onto the client. This tax contribution is used by the government assist in funding such programs as Social Security and Medicare. The rate for employer contribution for Social Security as of 2009 is 6.2% and limited at $106 800. As for Medicare, the employer’s and employee’s obligation is %1.45 with no cap on contributions, therefore bringing the total FICA contribution to 12.4%.

The rate of contribution by the employee is nearly equivalent at 6.2% imposed upon the first $102 000 of income. This cost, as was previously mentioned, is passed along to the employer contracting a Professional Employee Leasing Organization (PEO) as it is a cost of being an employer, whether they contract a PEO or not.

Federal Unemployment Taxes (FUTA) & State Unemployment Taxes (SUTA)

In addition to FICA, the federal government levies Federal Unemployment Taxes (FUTA) upon employers and states levy State Unemployment Taxes (SUTA). The federal tax was previously 6.2% of the first $7 000 worth of income for employee but, as of January 1, 2009, has changed to 6.0%. These funds are utilized to fund unemployment benefits and job service programs within the respective state and throughout the nation. Credits are allowed which may reduce the federal unemployment taxes to 0.8% but these are dependent upon particular circumstances are relevant to individual situations.

These unemployment taxes are costs also born by the employer and are therefore included within a Professional Employee Leasing Organization (PEO) quote.