May 19, 2016    |    By

You’ve learned all about what payroll taxes are and how to calculate payroll taxes, but what about reducing them? Have you ever asked yourself, how can I reduce my payroll tax? Is it even possible? Payroll taxes range from 10-18% of your total payroll. While they are important taxes to pay, there are legal ways to reduce some of them, which we will discuss in this blog.

Here are 4 ways to reduce payroll taxes:

1. Reduce Employee Turnover

This is the million-dollar question. How do you reduce employee turnover? Before we talk about how, let’s talk about why. Your state and federal unemployment taxes are calculated using several factors, one of them being your grade for unemployment claims. The more claims you have the worse your grade. The worse the grade, the higher the tax rate.

  • Invest in team building and creating an empowering culture in your workplace. Job turnover at an organization with a high focus on company culture is 13%, but 48% in companies with a low focus according to Keeping your employees motivated and engaged will reduce your turnover.
  • Use a staffing agency for your first 90 days of hiring an employee. Employees are more likely to quit or you’re more likely to get rid of them in the first 90 days than any time after that. That increases your turnover and risk for unemployment claims. Employment agencies take the hit of the unemployment claim because the employee will be on the staffing agency’s payroll not yours.

2. Give Your Employees Benefits That Are Exempt from Payroll Taxes

Raises are nice and highly appreciated by most employees. However, as the different generational groups rise in the workforce, they are looking for more than just a paycheck. Benefits like health insurance, tuition assistance and retirement benefits are extremely important. These are what is considered by the IRS “fringe benefits.” For a full list go to These benefits are exempt from FICA and FUTA taxes.

3. Using Reimbursements

Reimburse items like gas-mileage and other business related expenses. If these are filed correctly and in a timely manner they can help decrease payroll taxes.

4. Talk To A CPA

There may be more ways to reduce your payroll costs than just these few options. Talk to your CPA and find out the best ways to keep your payroll costs under control.

There is a lot to know about payroll. check out our Free Payroll Guide For California BUsiness Owners !

Make a great first impression at your next job interview.

This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.