Unemployment insurance rates will drop 26%

Hawaii businesses got an early gift this year as the state Department of Labor and Industrial Relations announced a 26 percent average drop in unemployment insurance rates Wednesday.

The state said the drop will result in employers paying $50 million less in taxes, or $100 less per employee on average, in 2016. This is the third consecutive decrease in the amount employers have had to pay into the fund since 2013, when employers paid on average $910 per employee. In 2016 employers are expected to pay approximately $340 per employee.

Employer contributions help keep the state’s Unemployment Compensation Trust Fund at a level necessary to pay out unemployment benefits for one year. The state’s current reserve of $460 million is enough to cover 13 months of benefits.

Many small-business owners said they were happy to see the cut.

“Hawaii has been getting such a bad reputation as a place to do business, anything positive helps,” said Tommy Silva, owner of TNT Tinting Specialists.

Silva said the reduction was nice to see when other business costs keep adding up.

“That’s great. Any savings is a plus,” he said. “We’re always hearing the opposite. Everything is going up and we’re trying to find ways to cover the added expenses and reduce costs in other areas. Besides gasoline costs going down, this is the second best thing we have seen all year.”

Joshua Strickland, founder and CEO of Hawaii Camera, agreed.

“Any reduction in expenses helps,” he said.

Quinn Vittum, executive director at Re-use Hawaii said the decrease will allow the nonprofit to keep operation costs low, but he wished the decrease had been even bigger.

“That’s fantastic, hopefully it maintains every year,” Vittum said. “Our payroll every month is $70,000. It will be just a tiny fraction of savings but anything counts. As a nonprofit we’re trying to always reach our break even (point) and cut as many costs as possible to keep the cost of services down.”

Gov. David Ige said in a statement the move comes at a time of continued strength in the state’s economy.

“It frees up capital that companies can use to improve their businesses, and it’s also a reassuring sign to workers that the reserve has been replenished and will be available to act as a safety net in the event of a future economic downturn,” Ige said.

The unemployment rate dropped to 3.2 percent in November, down from 4.1 percent a year earlier. This drop has contributed to the replenishment of the Unemployment Compensation Trust Fund, the state said.

Like Ige, Sherry Menor- McNamara, president and CEO of the Chamber of Commerce of Hawaii, said the reduction is a sign of the strengthening economy.

“It is encouraging to see,” she said. “Anytime there is savings in taxes employers generally use it to reinvest in their businesses or employment needs. It all varies depending on the type of company. Definitely, with savings and continued decrease in unemployment in general, businesses are more encouraged to make that investment.”

In December 2010, the state had to borrow $183 million to pay benefits when the Unemployment Compensation Trust Fund went bankrupt.

“The Trust Fund is designed to replenish its balance when times are better so the taxes on employers do not rise when the economy falters and when employers can least afford higher taxes,” said Luis P. Salaveria, director of the Department of Business, Economic Development and Tourism.

Department of Labor and Industrial Relations Director Linda Chu Takayama said her department’s duty is to shield employers against the double whammy of diminishing profits and rising unemployment taxes during times of recession.

“Unemployment benefits also provide the ability for a worker unemployed through no fault of their own to put food on the table and shelter over the heads of their family while they search for another job,” she said.

BUSINESS TAX BREAK

The amount employers have had to pay in to the unemployment insurance fund has decreased three times since 2013 when employers paid on average $910 per employee.

* Approximate amount employers paid per employee