Hawaii’s employers are enduring their fourth straight year of sharply higher unemployment taxes as the state works to replenish the trust fund used to pay jobless benefits.
The state Department of Labor and Industrial Relations estimates employers will pay an average of $980 per worker into the fund this year, a nearly tenfold increase compared with the $100 per worker they paid as recently as 2009.
The state began the series of aggressive tax increases in 2010 after the trust fund ran out of money. A surge in unemployment insurance claims fueled by the 2008-2009 recession drained the fund, forcing the state to borrow from the federal government.
The increased employer contributions boosted the trust fund balance to $104 million at the end of 2012, and the fund is forecast to climb to $285 million by the end of 2013. However, the balance is still short of the DLIR’s targeted "adequate reserve level" of $384 million.
The amount each employer is required to pay into the fund varies based on a formula that includes how much they pay their workers, the amount of unemployment benefits previously claimed by their employees and the level of reserves in an employer’s account with the state.
For Deborah Agles, a self-employed physician, the amount the state requires her to pay to cover herself rose to $1,033 this year from $621 in 2012.
"I’ve never drawn unemployment benefits in my life," said Agles, who practices occupational medicine. "I can’t quite figure it out."
Agles said she called the DLIR and explained that she did not have any employees and had dutifully paid into the fund for many years without drawing on it.
"I told them it seemed like a mistake," she said. "They told me if I thought it was wrong, I could appeal."
One of her concerns was that the DLIR had moved her into a higher contribution category in 2013 from 2012 even though she had not tapped the fund. However, Agles’ accountant later confirmed that the shift was based on changes in the DLIR’s formula and that the assessment was calculated correctly.
Among the changes the DLIR made between 2012 and 2013 was to increase the amount of a worker’s paycheck subject to the unemployment tax. In 2013 the amount was capped at $35,966, up from $27,367 in 2012. The amount of wages subject to tax is calculated by averaging a worker’s pay for the previous three years up to the cap.
DLIR has raised the cap each year since 2009, when it was $13,000. The single-year cap for 2012 was $38,800, the second highest of any state.
The DLIR also adjusted its contribution rate schedule upward for 2013 to the second-highest category (G) from the third-highest category (F) in 2012. The DLIR sets the letter category based on a statutory formula designed to keep the fund’s balance within a certain band.
The state Legislature last session considered, but did not pass, a bill that would have kept the rate schedule at category F in 2013 to ease the burden of the tax on businesses. The Senate approved the measure, SB 1272, after receiving supporting testimony from two dozen businesses and business groups, including the Chamber of Commerce of Hawaii. However, the bill died in the House.
The bill was opposed by two labor unions and the state Department of Labor and Industrial Relations. DLIR Director Dwight Takamine testified that the bill would delay the restoration of the trust fund to the adequate reserve level.
Takamine noted that lawmakers in previous years had "artificially lowered" the statutorily determined rate schedules to ease the burden on businesses.
"The department has major concerns about the repeated disregard of the original intent of the Legislature in defining and maintaining the UI Trust Fund at the adequate reserve level despite the insolvency in 2010," Takamine testified.
Sen. Sam Slom (R, Hawaii Kai-Diamond Head), who voted for SB 1272, said the Legislature missed a chance to deliver some relief to businesses.
"Employers have been led to believe that the Legislature is looking out for them," Slom said. "We already have one of the most unfriendly business climates in the country. The people who talk about raising the minimum wage and raising payroll taxes have never run a business," he said.
A report DLIR prepared for the Legislature last December delivered an upbeat view of the trust fund’s future. Assuming the unemployment rate and claims for unemployment insurance continue to decline, the contribution rate schedule could be adjusted downward to category E, according to the report.
The state’s Unemployment Trust Fund is projected to take in $372 million in taxes and earn $8 million in interest this year, while paying out $198 million in benefits. That would leave the fund with an estimated $285 million balance at year’s end.
