Hike in jobless insurance tax is delayed to help businesses

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GEORGE F. LEE / GLEE@STARADVERTISER.COM
Students from Pearl City Elementary School witnessed a bill being signed into law Friday when Gov. Neil Abercrombie added his signature to the unemployment insurance bill. Afterward, the children posed with the governor and legislators. The students are Alycia Pasion, left, Jessica Miller, Iris Ponce, Jasmin Nagasawa and Naomi Reupena-Tuaiao. In the back row are state Sen. Suzanne Chun Oakland, left, teacher Russell Minobe and state Sen. David Ige.

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A law enacted Friday postpones a scheduled unemployment insurance rate hike and will save business owners across the state about $107 million.

Businesses now have a yearlong reprieve from an automatic rate hike that would have gone into effect in March. The new law is retroactive to Jan. 1 and maintains the current rate through the end of the year.

The measure benefits both businesses and employees, said Gov. Neil Abercrombie.

"I’m sure business owners and employees will be very encouraged by this because both elements, if you will, are being addressed," Abercrombie told about a dozen lawmakers and others who attended the bill signing.

Businesses pushed for the delay in the tax increase, which representatives said would especially hurt small businesses that are just starting to recover from the economic recession.

Another section of the law sets unemployment benefits at 75 percent of the average weekly wage, rather than the normal 70 percent. This will also last through the end of 2012.

"Employees are going be guaranteed a significant portion of funding to meet their bills and obligations and responsibilities should an unemployment situation occur," Abercrombie said.

"The mitigation of burdensome tax increases for Hawaii’s businesses will directly aid in the revitalization of our state’s economy by spurring the creation of new jobs and promoting increased productivity," Sherry Menor-McNamara, chief operating officer of the Chamber of Commerce of Hawaii, said in a statement.

The unemployment insurance rate is automatically set according to how much the state has in its unemployment compensation reserve fund, which is running on empty after being depleted in December 2010.

The Labor Department cautioned that delaying the increase could mean a bigger hit for businesses in the future, if their contributions to the reserve fund don’t begin to replenish it. But those advocating for an extension of the current rate argued an increase could lead to higher unemployment claims, which could be a bigger drain on the reserves.