Re: Grim numbers, just grim

Subject: Re: Grim numbers, just grim
From: Elna Tymes <Etymes -at- LTS -dot- com>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Mon, 18 Feb 2002 12:33:49 -0800

Andrew Plato wrote:

California its like 30%. That is because of taxes. When your employer deducts
$500 in federal widtholding, the employer must MATCH that amount. That means
they have to put in $500 as well for a total of $1000. That $500 has to come
from somewhere, and that somewhere is your check. Then there is FUTA payments,
state unemployment, not to mention the mere overhead of the agency. All that
adds up. The agency has to cover their expenses and then they have to make a
profit on the deal.

wayne menke wrote: Well, federal withholding is the amount the employer deducts from the
employee's salary for federal taxes. There's no match here. What the
employer does match is social security and medicare payments, equal to
7.65% of gross salary.

While it all adds up, FUTA is a nominal cost (maximum of $56/year).

I'm not familiar with West coast taxes, but it sounds unlikely that it
would cost 50% more to do business in California than Oregon.

I just love it when Andrew Plato engages in hyperbole. It's so easy to shoot down his hypotheses. Wayne was partially right in his response, but as a California employer, let me tell you what it's really like:

1. Federal withholding tax is basically the withheld portion of your federal income tax. It is *never* matched by the employer. And it's the same from state to state.
2. California has a state income tax, and that is withheld too. However it's a small percentage of what's withheld in federal income tax. Many states have different percentages, and some (including Oregon) have no state income tax.
3. Social Security (also known as FICA) is also withheld, and the amount withheld is matched by the employer. I think the percentage is somewhere around 7.65%, but it's the same across all states. So Oregon has no advantage over California - or any other state - in this area.
4. FUTA is federal unemployment tax, and that's the same across all states, if I remember correctly. No advantage to Oregon.
5. California has a Disability Insurance tax - a small percentage usually amounting to less than a $10 deduction on most paychecks - and it comes out of the employee's pocket, not the employer's.

In sum, the only difference in *payroll* taxes between California and Oregon is the state income tax, and that comes out of the employee's pocket.

Where the difference between states lies is the other kinds of taxes paid by a business. For instance, all businesses pay federal income taxes of one sort or another. California businesses also pay a state income tax, with a minimum of $800/yr. Localities may also charge one or more business taxes - in Mountain View (part of Silicon Valley), we are paying $30/year for a business license. If we were in San Francisco, we would probably be paying other kinds of taxes, probably more than in Mountain View.

The problem with comparing the costs of doing business from state to state has largely to do with other factors, the biggest usually being the cost of real estate. Now is not a good time to be comparing locales, however - most of Northern California has been hit so hard that nobody is getting rents like they were a year ago, and there are vacancies everywhere. Rental rates have dropped as much as 50% in some places. I hear that rates in New York skyscrapers have also plummeted.

Additionally, there can be other factors to business costs: utilities, insurance, etc. Only after you get through the actual costs can you figure in an agency overhead so that the agency makes a profit. It used to be that the agency could figure a 30% markup, minimum, and break even. Nowadays, nobody's talking to agencies because it's so much cheaper to go directly to potential employees.

Elna Tymes
Los Trancos Systems


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Follow-Ups:

References:
Re: Grim numbers, just grim: From: Andrew Plato
Re: Grim numbers, just grim: From: wayne menke

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