State unemployment tax slated to automatically triple in 2021

Failure to address the legally required increase could discourage employers from hiring back employees after the lockdowns

From Grassroot Institute, Nov 15, 2020

HONOLULU, Nov. 15, 2020 >> Hawaii’s yearly unemployment tax on businesses is set to automatically triple in 2021 to an average of 3.65% or $1,757 per employee, up from 1.11% or $534 per employee, according to research from the Grassroot Institute of Hawaii.

That’s because the tax moves up or down depending on the funded ratio of the state unemployment fund, which is $664 million in the red this year because of the state’s coronavirus-inspired lockdowns.

This sets the unemployment tax to “Schedule H,” which is a record high level for Hawaii, and the maximum rate allowable by Hawaii law. Schedule H sets the tax between 2.2% and 6.6% depending how much each employer contributed to the fund in previous years and other factors.

For example, some employers could see their tax go from $0 per employee in 2020 to $1,154 in 2021. Other employers, such as new businesses, would see the tax rise from $1,154 per employee in 2020 to $2,501 per employee in 2021.

Said Keli’i Akina, president and CEO of the Grassroot Institute of Hawaii, “Unfortunately, when the unemployment fund goes down, the tax goes up, and that hurts businesses’ ability to hire employees. Lawmakers should find ways to reduce taxation so the economy can recover faster.”

A bill being drafted by the Ige administration would avert the “H” level tax rate, according to William Kunstman, spokesman for the Department of Labor and Industrial Relations, who responded to the Grassroot Institute’s request for information about the situation.

According to Kunstman, the yet-to-be drafted legislation would be similar to Act 6 of 2012, which averted the H level by setting the tax level at “F.” In 2012, that equaled an average tax rate of 2.6% or $1,018 per employee, down from 3.8% or $1,461 per employee.

Additionally, Gov. David Ige has considered depositing unspent CARES Act money into the unemployment fund by the end of the year. So far the state has $544 million of unspent CARES Act money, but even if he deposited all of that money into the fund, it would not be enough to put it back in the black. The fund would need at least $225 million more before the tax rate could statutorily decrease at all, according to Grassroot Institute calculations.

Said Akina: “The unemployment debt is a new unfunded liability for which Hawaii businesses will be paying for a long time, especially if more unemployment benefits are needed to deal with the economic depression. The additional taxes will make businesses more reluctant to hire workers, stalling the recovery, and sending the state in a tailspin. ”

Akina added, “Lawmakers should rethink the structure of the unemployment system, which punishes businesses and prospective employees during economic downturns. At the very least, they should reduce spending as much as possible to allow more wiggle room to reduce taxes. That could foster a friendlier business environment in the state and provide more jobs and opportunities for Hawaii’s struggling residents.”