Businesses Brace For UI Increase In 2010 | Unemployment insurance could rise by as much as 40% next year
Joel Shaughnessy, human resource director for L.S. Starrett, is nervously waiting to see just how much unemployment insurance costs will go up for his company next year.
The Athol-based tool manufacturer has been forced to lay off or reduce hours for more than 100 workers in the last year. And those employees, along with about 230,000 others across the state, have been dwindling down the state’s Unemployment Trust Fund to dangerously low levels. So low, in fact, that unemployment insurance taxes could increase as much as 40 percent for some businesses next year.
Weighing The Options
State officials and business advocates are exploring ways to stave off the increase for businesses, by borrowing more from the federal government and enacting long-term cost saving policy reforms.
In the meantime, Shaughnessy and other businesses leaders are in a “wait-and-see mode.”
“We definitely know the schedule is going up, we just don’t know how much,” he said.
The trust fund has been paying out benefits to unemployed workers at a nearly two-to-one rate compared to the amount of money the trust fund has brought in this year.
By year end, payments out of the system are expected to total $2.7 billion, compared to employer contributions into the system that are only projected to be $1.4 billion.
Meanwhile, the trust fund’s balance has dropped from $1.2 billion at the beginning of 2009, to $455 million as of September.
Low reserves at the end of the year, projected to be at $78 million, will automatically trigger increases for business contributions. Officials say, however, no one collecting unemployment is in jeopardy of losing their benefits, because most of the extended benefits beyond the state’s obligation are paid for by the federal government.
The Associated Industries of Massachusetts, which represents businesses from across the state, is one organization trying to ease the burden on businesses.
“We’re talking with the administration to try to moderate that increase,” said John Regan, director of government affairs for AIM.
The state sets a rate schedule for business to pay into the fund quarterly. The rate schedule has increasing levels of taxation labeled A through G, with G being the highest possible rate that businesses pay.
Currently, the trust fund sits at schedule E, but given the low reserve in the account, the fund will automatically increase to a level G schedule, the highest tax amount.
An increase to the G schedule would raise the average company’s per employee tax from $594 to $832.
Regan is calling for the schedule to increase instead to F, the second highest level, accompanied with other reform measures.
The state could borrow more money from the federal government, Regan said. He is also looking for other policy changes that would stabilize the fund in the long-term.
For example, the number of weeks employees are eligible to collect benefits could be reduced from the nationwide high of 30 weeks down to the national average of 26 weeks. Currently, however, federal subsidies allow unemployed workers to collect insurance for additional weeks, in some cases to as many as 93 weeks.
Edward Malmborg, director of the state Division of Unemployment Assistance, said he hopes to work with industry advocates, such as AIM, to prevent the drastic 40 percent possible increase. He expects legislation to be filed in January to outline a plan of how to increase the trust fund’s balance without relying solely on business contribution increases.
Regan said another policy change could increase taxes at a higher rate on businesses that have a negative balance within the trust. Businesses pay a per-employee tax into the fund, which is a percent of each employee’s first $14,000 worth of earnings.
The percent is determined by the amount a company has contributed into the system over time versus how much money employees of the company have drawn out of the fund.
Regan said long-standing businesses may be able to keep a positive account balance even if the company has laid off some employees. Younger companies that have been hit with layoffs may dip into a negative account balance sooner. With the policy shift, businesses with a negative balance could pay more than companies with a positive balance.
The unemployment contributions are not the only increases businesses will face next year.
Malmborg said the state is also increasing employer contributions to the Medical Security Trust Fund, which provides temporary health care to unemployed workers.
For the average employer, costs will double from $16.80 to $33.60 per employee.
In a time when government is attempting to encourage job growth, David McKeehan, president of the North Central Massachusetts Chamber of Commerce, said it’s a bad sign that the state is warning businesses to prepare for a 40 percent increase in unemployment insurance costs next year and a doubling of the medical trust fund costs.
“It is disturbing,” he said. “Certainly when you add a cost to employing new people, you create a disincentive for hiring.”
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