Businesses will have to pay three times more in unemployment tax in 2021

HONOLULU(KHON2) — Businesses will have to pay up to three times more in unemployment taxes come January.

It’s something many worry will force more businesses to close.

The unemployment trust fund, which is used to pay unemployment benefits, is empty. In fact, Hawaii’s unemployment fund is hundreds of millions in the red. Unless legislators act quickly, employers will be forced to pay the maximum in unemployment taxes, which is roughly three times what they paid in 2020.

The unemployment rate peaked in April at 23.8%, up from 2.4% in March. Six months later the unemployment rate is still at 14.3% with roughly 91,700 people in Hawaii collecting unemployment.

The Department of Labor and Industrial Relations Director Anne Perreira-Eustaquio said the money used to pay all those unemployment checks, is paid by businesses.

“The unemployment tax is fully funded by employers,” Perreira-Eustaquio explained. “In the state, employers are the ones who pay into the the trust fund.”

Due to the high unemployment rate, she said the fund was depleted, and the state now owes millions.

“We borrowed about $695 million from the federal government,” Perreira-Eustaquio said. “By the end of December, we estimate to borrow about one to $1.2 billion in money to cover payments to individuals who are unemployed, here in Hawaii.”

Because of this, unemployment taxes automatically go up, and employers will have to pay higher unemployment taxes come 2021.

“Schedule C determines that the employer assessment is at an average is about $600,” Representative Sylvia Luke said. “Right now, because the Unemployment Trust Fund is depleted, we are at schedule H, which is basically the highest. Schedule H is at an average of about $1,900 (in taxes). So as you can see, it’s a substantial increase. And that’s the average. The maximum amount that can go under schedule H is $3,400.”

Kelii Akina, The Grassroot Institute Hawaii President Kelii Akina said the increase will hurt small businesses.

“A restaurant, or perhaps a small retail shop, with 10 employees, they’re paying now about $5,500 to $6,000 a year for their unemployment tax,” Akina said. “Next year, they’re going to pay automatically at least $18,000. That’s a three fold increase.”

It could have drastic consequences.

“Businesses are going to resist hiring people that’s going to result in a lot more unemployment,” said Akina.

It could also force more businesses to close for good.

There are two ways to solve the problem. The first, put unused CARES Act Funds into the unemployment fund. The second is for the legislature to step in.

“We are planning to provide the governor with a bill to include in his package,” Perreira-Eustaquio said. “Right now, we are planning for that bill to bring the tax rate down from our highest tax schedule right now, which is H. That’s what would be statutorily set if we went by statute regulations. And we bring it down to F for both 2021 and 2022.”

Luke said the legislature is very concerned.

“When we return in January, we will definitely take a look at adjusting the schedule and setting at a level that will be that will not be punitive or challenging for businesses,” Luke explained.

Perreira-Eustaquio said the last time unemployment funds were depleted was in 2010 following the 2008 recession.

She added that no one needs to worry about their unemployment benefits being paid.

“The US Department of Labor will let us continue to borrow as long as we need to pay out benefits to claimants who are due benefits,” Perreira-Eustaquio explained. “We want to make sure that we do everything right. We stay in compliance with the statutes because if we go out of compliance, then we could lose all funding for any unemployment insurance program in the state of Hawaii. So we have to make sure we stay in compliance. But the federal government is there to help us to continue to pay those benefits through these advanced loans.”