State To Start Charging Extra For Jobless Benefits
By MATTHEW STURDEVANT and JANICE PODSADA
January 31, 2011
This summer Connecticut will start charging employers an extra fee to help pay back hundreds of millions of dollars the state borrowed from the federal government to fund unemployment checks to the jobless.
The fee works out to about $400 for an average business with 10 workers, or $40 per employee, said Carl Guzzardi, unemployment tax director for the state Department of Labor.
But the fee is just one of several increases employers are facing. By next year, a typical company will see its unemployment insurance payments increase by hundreds of dollars per worker compared with 2008. Costs vary depending on each firm's layoff history.
The added costs are particularly galling to businesses that have fought to keep all their workers on board.
"We've never had a layoff — even when times are tough. Now, we're paying for someone else's decision or bad behavior," said Guy T. Hatch, chief executive of On Site Gas Systems Inc. in Newington, which makes equipment that generates nitrogen and oxygen at high purity levels.
Connecticut is one of 30 states that continue to borrow from the federal unemployment account to pay for state unemployment programs. Those states owed a total $42.25 billion as of Jan. 21, and the debt keeps getting deeper, according to the U.S. Department of Labor.
With the unemployment level hovering at 9 percent for months in Connecticut, Guzzardi said the state expects to borrow $1 billion from the federal government in the next few years.
The added charge covers just the interest on Connecticut's federal unemployment loans. In January, state employers' share of federal unemployment taxes will also increase, to recoup the $581 million Connecticut has borrowed since the state's unemployment insurance trust fund bottomed out in October 2009.
Connecticut unemployment insurance has two parts: an "experience rating" tax from 0.5 percent to 5.4 percent of the first $15,000 paid to each employee, based on an employer's history of layoffs; and a "fund solvency" tax of 0 to 1.4 percent — which is now at the maximum, Guzzardi said.
Even before the increases, the average state unemployment rate paid by employers into the trust fund has increased from 2.6 percent in 2008 to 3.75 percent last year.
"We're projecting 4.65 percent for 2011," Guzzardi said, adding that it doesn't include the extra fees that will be due each summer.
Additionally, state employers pay a federal unemployment tax that is typically 0.8 percent for the first $7,000 paid to each employee. That percentage will increase by 3/10ths of 1 percentage point from the base rate each year until Connecticut pays back the federal loans completely, which could take until the end of 2015, Guzzardi said.
"The state does not have an option," Guzzardi said.
If the unemployment rate drops, and the state starts bringing in more money than it pays to out-of-work residents, the extra will first go to repay the federal government, lowering the add-on fees.
At On Site Gas Systems, which is privately owned, "We run our business like a family. We've found ways to work with our employees so they keep busy," Hatch said. "We took a long time finding them and training them, so we don't want to let them go."
Since 2008, Hatch's gas company has kept its payroll numbers steady at "about 47 or 48 employees," Hatch said.
Speaking of the higher costs, he said, "I'm going to get the business, but this kind of thing limits the number of employees we can get. I'm not going to be able to add employees."
That, of course, will help keep the unemployment rate high. Connecticut employers added a paltry 5,300 jobs in 2010, preliminary figures show.
Reprinted with permission of the Hartford Courant.
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