$151M tax cut now law
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By Curtis Lum
Advertiser Staff Writer
A new law eases the unemployment insurance tax burden on businesses and should save them an estimated $151 million over the next three years, or more or less than $1,100 per employee per year.
Act 110, signed by Gov. Linda Lingle last week, will lower the taxable wage base used to calculate what employers pay for unemployment insurance, while increasing the benefits for unemployed workers.
The changes were made possible by the state's continued low unemployment rate — 2.4 percent in April — and steady job growth. The result is a large balance in the state's unemployment insurance fund of nearly $540 million.
The governor's office said the balance is "more than enough" to cover the state's annual unemployment expenses of about $90 million, which was paid out each of the past two years.
"Instead of having this money sit idle in the state's unemployment insurance fund, employers can now use this money to reinvest in their business and their employees," the governor said.
Tim Lyons, executive director of the Hawai'i Business League, said he hopes employers will put the money to good use, rather than give themselves a raise.
"Hopefully most of them will turn it back to their businesses either for new positions, new equipment or reinvesting back into the business," he said.
Lyons said businesses had lobbied for an even greater tax break for employers, but said he was satisfied with the new law, which takes effect Jan. 1.
"Considering the legislative process that goes on, that of being one of give and take, it's a good bill," Lyons said.
Under the new law, the taxable wage base for unemployment insurance payments will decrease from $35,300 of an employee's gross pay to $13,000. The current taxable wage base is the highest in the nation, Lyons said.
Although businesses had sought a drop in the wage base to $7,000, Lyons said the new law will still result in a "substantial savings" for employers of up to or less than $1,100 per employee each year.
"That's not too shabby, actually, in the world of business," he said.
The law also will increase maximum weekly unemployment benefits for employees from 70 percent to 75 percent of the worker's average weekly wage.
Employees who also hold a part-time job or have other forms of income will be able to keep more of their unemployment check as the law will raise the earnings "disregard" from $50 to $150.
Barring a "severe and unexpected economic downturn," the state Department of Labor and Industrial Relations said the fund will have a balance of more than $400 million at the end of 2010.
Reach Curtis Lum at culum@honoluluadvertiser.com.
Correction: Businesses will see an average annual savings of 30 percent under the unemployment insurance tax law that takes effect Jan. 1, according to the state Department of Labor and Industrial Relations. A previous version of this story stated that businesses will save $1,100 per employee each year, but the actual dollar amount saved could be more or less than $1,100.
