Businesses bracing for unemployment tax increases on horizon

HONOLULU (AP) — Businesses in Hawaii are anticipating a possible tripling of unemployment taxes that could slow the recovery of the economy that has been crippled by the coronavirus pandemic.

The state Department of Labor and Industrial Relations must notify employers of the state unemployment tax rate no later than March 15, The Honolulu Star-Advertiser reported Sunday.

The applicable tax rate takes effect this month, with the payments due by the end of April.

Individual tax contributions by employers are calculated according to unemployment insurance fund utilization. Businesses that made cuts to their workforce or reduced employee hours face higher unemployment taxes.

The Grassroot Institute of Hawaii anticipates Hawaii’s yearly unemployment tax on businesses is set to automatically triple in 2021 to an average of 3.65 percent, or $1,757 per employee, up from 1.11 percent, or $534 per employee.

Labor and industrial relations department spokesman Bill Kunstman said it is “unlikely that the average employer’s unemployment tax rate would go to the max, as the average employer has sufficient reserves to prevent that trigger.”

State unemployment tax rates for employers are determined by a schedule, which is currently at Schedule C level. Fund depletion could move the rate to the highest level of Schedule H.

Joe Kent, Grassroot Institute of Hawaii executive vice president, said Schedule H sets the tax rate between 2.2 percent and 6.6 percent, depending on factors including previous employer contributions.

There are still too many variables to determine the full impact, but Kent said the impact is “going to be worse than we can even calculate.”

Chamber of Commerce of Hawaii President Sherry Menor-McNamara said the organization is working with Democratic state Rep. Sylvia Luke on legislation to mitigate the increase. Luke chairs the House Finance Committee.

The chamber said an increase would impede economic recovery by slowing rehiring and possibly leading to further layoffs.

Jason Higa, CEO of FCH Enterprises Inc., better known as Zippy’s, said the local restaurant chain faces an 18-fold increase in unemployment taxes. The company had to cut its workforce from 2,000 to about 1,500 workers.

The restaurant industry is in a “cash bleed” using up reserves, Higa said.

“Today those that (are open) still have a cash reserve. But how long can you survive before the vaccine can become available? The (state unemployment tax rate) increase just accelerates the remaining days that you are trying to survive,” Higa said.