Employer-Only Payroll Taxes

Employers pay Federal Unemployment Tax Act (FUTA) tax and State Unemployment Insurance (SUI) tax entirely on their own — employees do not pay these out of their paychecks. Employers also pay the employer portion of Social Security and Medicare taxes, which is 7.65% of each employee's wages. The employee pays a matching 7.65%, but the employer's share is a business expense that comes from the company, not from what the worker takes home.

Some states also require employers to fund State Disability Insurance (SDI) or Paid Family Leave (PFL) programs entirely from the employer side, though a few states split the cost with employees. Workers' compensation insurance is another employer-only cost in all states — it protects employees if they are injured on the job, but the worker does not contribute to the premium.

Key Takeaways

  • FUTA and SUI taxes are paid entirely by the employer and do not reduce an employee's paycheck.
  • Employers pay 7.65% in Social Security and Medicare taxes on top of what employees pay, for a combined total of 15.3%.
  • State Disability Insurance and Paid Family Leave programs are funded by employers in states that have them, though a few states require employee contributions as well.
  • Workers' compensation insurance is an employer cost in all 50 states and protects employees against job-related injury or illness.
  • These employer-only taxes are business expenses and do not appear on an employee's pay stub.

Federal Unemployment Tax (FUTA)

FUTA is a federal tax that employers pay to fund unemployment benefits for workers who lose their jobs. The federal rate is 6% of the first $7,000 of each employee's annual wages, though employers can claim a credit of up to 5.4% if they pay state unemployment tax on time. This means most employers end up paying 0.6% in federal unemployment tax after the credit.

The employee never sees this deducted from their paycheck. It is purely a business cost. The tax funds the federal unemployment insurance system, which states draw from when their own unemployment funds run low. Even if an employee never collects unemployment, the employer still pays FUTA on their behalf.

State Unemployment Insurance (SUI)

States require employers to pay into a state unemployment insurance fund that pays benefits to workers who are laid off or fired without cause. The rate varies by state and by industry — some states charge 0.5% of wages, others charge 5% or more. New employers often pay a higher rate until they have a track record; established businesses with few layoffs may pay a lower rate.

Like FUTA, SUI does not come out of the employee's paycheck. It is a state-mandated employer expense. When a worker files for unemployment benefits, the money comes from this fund that the employer has been paying into. The employee does not contribute.

Employer Social Security and Medicare Taxes

Employers pay 6.2% in Social Security tax and 1.45% in Medicare tax on each employee's wages — a total of 7.65%. This is separate from what the employee pays. An employee sees 7.65% deducted from their gross pay for Social Security and Medicare, and the employer pays an additional 7.65% on top of the employee's salary.

For example, if an employee earns $1,000 per week, the employer pays $76.50 in Social Security and Medicare taxes that week, and the employee also pays $76.50, for a combined total of $153. The employee's take-home is reduced by their $76.50 share, but the employer's $76.50 is a separate business cost.

State Disability and Paid Family Leave Programs

Five states — California, Hawaii, New Jersey, New York, and Rhode Island — have State Disability Insurance programs that provide partial wage replacement if an employee cannot work due to illness or injury. Most of these states fund the program through employer contributions, employee contributions, or both. California and New York also have Paid Family Leave programs that let workers take time off to care for a newborn or family member.

In California and New York, both the employer and employee contribute to Paid Family Leave. In New Jersey and Rhode Island, the employer bears the full cost of their disability programs. Hawaii's program is employer-funded. These are state-specific requirements, so the rules depend on where the business operates and where the employee works.

Workers' Compensation Insurance

Every state requires employers to carry workers' compensation insurance, which covers medical bills and lost wages if an employee is injured or becomes ill because of their job. The employer pays the entire premium — the employee does not contribute. The cost varies by industry; construction and manufacturing typically have higher premiums than office work.

Workers' compensation is a no-fault system, meaning an injured employee can receive benefits even if the injury was partly their own fault. In exchange, employees generally cannot sue their employer for workplace injuries. The employer's insurance premium is a business operating cost and does not appear on the employee's pay stub.

How Employer-Only Taxes Affect Take-Home Pay

Employer-only taxes do not reduce what an employee takes home — they are costs the business absorbs. However, they do affect how much it costs a company to employ someone. If an employee earns $50,000 per year, the employer's total cost is higher once FUTA, SUI, Social Security, Medicare, workers' compensation, and any state disability contributions are added in.

This total cost is sometimes called the "loaded labor cost" or "fully burdened cost." It matters to employers when budgeting, but it does not change the employee's paycheck. The employee's take-home is reduced only by taxes and deductions that appear on their pay stub — federal income tax, state income tax, and the employee's share of Social Security and Medicare.

Frequently Asked Questions

Do employees pay any part of unemployment insurance?

No. FUTA and SUI are paid entirely by the employer. Employees do not contribute to unemployment insurance through payroll deductions. When an employee collects unemployment benefits after losing a job, the money comes from the fund the employer has been paying into.

Why do employers pay both Social Security and Medicare if employees pay too?

The Social Security and Medicare systems are designed so that both the employer and employee share the cost equally. The employer's 7.65% contribution is a tax on the business, not on the worker's wages. This split funding model has been part of the payroll tax system since these programs began.

Can an employer deduct these taxes from an employee's paycheck?

No. FUTA, SUI, workers' compensation, and the employer's share of Social Security and Medicare are business expenses that the employer must pay separately. The only payroll taxes deducted from an employee's check are income tax withholding and the employee's share of Social Security and Medicare.

What happens if an employer does not pay these taxes?

The IRS and state tax agencies can assess penalties, interest, and back taxes. Employers can also face lawsuits from employees or claims from the state unemployment or workers' compensation system. Failure to carry workers' compensation insurance can result in fines and loss of business licenses in most states.

Are these taxes the same in every state?

FUTA is federal and the same everywhere, but SUI rates, workers' compensation premiums, and state disability programs vary by state. Some states have no income tax but higher unemployment insurance rates. Others have Paid Family Leave programs that employers must fund. Check with your state's labor department for the specific requirements where you work.