Ben Franklin once famously quipped, “Nothing is sure but death and taxes.” While the topic of taxes and statutory expenses may not win you many friends at a cocktail party, the keen staffing executive knows that understanding one’s statutory expenses is critical for maintaining healthy margins. Due to a number of factors, including higher-than-average turnover and increased risk in certain occupations (industrial and manufacturing staffing come to mind), few industries bear the burden of statutory expenses more heavily than the staffing industry.
While leaders and executives of staffing firms may not be able to completely eliminate their statutory expense burden (as surely as they cannot escape the eventuality of the grim reaper’s scythe), they surely have the option of exploring the states they do business in to seek those with greener statutory pastures. And, as it turns out, there do appear to be states that have more favor- able statutory expense environments.
So where are the best places to do business while not giving too much of the “pie” away to the tax man? For this article, I’ll ignore workers’ compensation costs and instead focus on SUTA (state unemployment tax act) taxes and FUTA (federal unemployment tax act) taxes. The easiest way to answer this question is to simply find the states with the lowest average SUTA and FUTA tax rates. By that method, South Dakota is the best place to be, with a nation-wide lowest average SUTA tax of 1.06% and simultaneously the lowest possible FUTA tax of 0.6%. That said, before you start looking at commercial real estate in South Dakota, there are other factors to consider. A quick check of Staffing Industry Analysts’ US Geographic Opportunity Atlas (a tool that uses data from the US Bureau of Labor Statistics to rank both states and metro areas based on several factors including growth in temp payroll, growth in temp payroll per branch, and the total number of temporary employees in a state) reveals that in 2013 there were only 2,343 temp jobs in the entire state; not a particularly promising prospect for an enterprising staffing firm.
Click on chart to enlarge.
A better way to answer the question would be to find those states with low SUTA and FUTA tax burdens, but lucrative business prospects (i.e., a high ranking on the Geographic Opportunity Atlas). To accomplish this, we first find the highest ranking states on the Geographic Opportunity Atlas, then find the states with the lowest tax rates within that group. As seen in the accompanying table, when analyzed in this manner the best states to do business in appear to be Wisconsin, Nebraska, Indiana, Mississippi and Texas.
Click on chart to enlarge.
Further inspection of the Geographic Opportunity Atlas reveals that Mississippi and Nebraska have a higher than average growth in temp payroll and temp employment, but they also have a much smaller temporary work base (less than half the national average).
So are these states truly the “promised land” of high growth opportunity and low taxes, and more importantly, should you expand your operations in these states? As with any business decision, there are a variety of other factors to consider besides the ones just discussed, not the least of which are your firm’s overall strategy, mission, and culture. That said, for those who do decide to expand in one of these states, or are doing business there now, at least you’ll know you’re saving on statutory expenses.
