Restaurant employers across the country are being warned to prepare for significantly higher unemployment insurance tax rates next year as joblessness grows and state benefit funds are depleted.
In some states, such as Hawaii, rates are already set to be hiked, while Maryland, Nevada, South Carolina and others are considering what steps to take as their unemployment benefit funds shrink.
Starting in April 2010 in Hawaii, the taxes paid by employers will increase from the current rate of $90 per employee annually to as much as $2,040, depending on the company’s unemployment experience rating, said Darwin Ching, director of the state’s Department of Labor and Industrial Relations.
New employers will pay about $1,500 per employee, Ching added. Most employers will be paying a rate of more than $1,000.
Richard Moon, vice president of TS Restaurants based in Lahaina on Maui, said it’s not clear yet how his company, with roughly 1,100 employees in Hawaii will be impacted, but, he said, “We don’t like it.”
Over the past two years, he said, the multiconcept operator of restaurants such as Duke’s Kauai and Hula Grill Waikiki has not seen any layoffs and turnover has been low, so the company is likely to experience the low end of the anticipated rate increase.
“But if something costs you $90 this year and something like $1,090 next year, you’re going to have to look at how to minimize that effect,” he said.
Other states also are preparing for unemployment insurance rates to ascend.
In Maryland, the state unemployment insurance trust fund is reportedly suffering after dropping from about $900 million a year ago to $341 million last month as unemployment claims have skyrocketed. Businesses there are being told to prepare for tax rates to more than triple next year.
Nevada is also reportedly expecting to see its state benefit fund run out, possibly as soon as this month, and the state is borrowing about $100 million per month from the federal government to pay unemployment benefits through the end of the year.
Gov. Jim Gibbons of Nevada earlier this month recommended that unemployment insurance tax rates be lowered from an average 1.33 percent to 1 percent for 2010 to give businesses a break. Several industry associations, however, have lobbied against the move out of concern about the state’s ability to pay back the trust fund loan.
Gov. Mark Sanford of South Carolina also reportedly has called for a forum in late October to discuss the state’s unemployment trust fund, which has been borrowing from the federal government for about a year. Measures under consideration there include expanding the taxable wage base and asking employers to pay an additional surcharge.
More than 20 states are currently borrowing federal funds to meet the increased demand for unemployment benefits, and several more are expected to join that group before the end of the year, said George Wentworth, a policy analyst with the National Employment Law Project, a national advocacy organization for employment rights of lower-wage workers.
About $16 billion is currently outstanding in loans to states from the federal government to support unemployment benefits, he added, with California having borrowed the most: $3.5 billion.
“The Department of Labor is projecting that up to 40 states will be borrowing from the federal government by the end of 2010,” Wentworth said.
Like Hawaii, many of those states have automatic mechanisms that increase the unemployment insurance tax rate when the funds come close to insolvency.
Hawaii is known as a state with generous unemployment benefits. The jobless receive a maximum of $545 per week for 26 weeks and an additional 33 weeks of federal approved benefits.
In 2007, when unemployment in Hawaii was below 3.2 percent, the state’s unemployment insurance trust fund reached an all-time high of $552 million, with employers paying an average of $280 per employee. Later that year, legislative changes lowered that rate to $90 per employee for 2008 and 2009.
The changes in the law, however, included a provision that tax rates would increase automatically if the unemployment trust fund balance dipped below an adequate level.
The recession has pushed Hawaii’s unemployment rate to 7.2 percent in August, though it is still lower than the national rate of 9.8 percent.
Officials with the state labor department in Hawaii said the fund has paid out an average of $31.7 million per month since January, and the trust fund will likely run out by the last quarter of 2010.
Steve Johnson, general manager of Kazi Foods of Hawaii, franchisee operator of about 50 Burger King and KFC restaurants with about 1,200 employees, said he had little choice but to absorb the additional costs expected for next year.
However, for Kazi, business has been relatively steady. So far, year-over-year comparisons show sales down only about 0.5 percent for his Burger King units and about 3 percent for the KFC locations, he said. But the outlook is not good.
“As more people are out of work, they have less disposable income, and that means fewer customers for me,” he said. “Since the tax changes go into effect in April, we’ll be able to live through it for the first quarter, but we’ll definitely have to deal with it in the second, third and fourth quarters next year.”— [email protected]
