Unemployment tax comes at bad time, say businesses
October 5, 2009 by Al Harris
The rising unemployment rate in Virginia has another, less obvious cost.
Virginia is borrowing $252 million from the federal government to replenish its fund for paying unemployment benefits, and as a result businesses are being hit with higher unemployment taxes.
This year, the average annual contribution per employee was $95. In 2010, it will rise to $171, and it will keep rising every year until the fund is solvent — $234 in 2011 and $263 in 2012 — according to the Virginia Employment Commission.
The higher tax is one more cost a business will have to consider before hiring an employee, according to Steven Piascik, president of accounting firm Piascik & Associates.
“If you are looking to get production up or have the sales force increased, this is an additional consideration,” said Piascik. “It’s a calculation that … has to be borne by the business.”
But Piascik said if a business needs a person, the tax wouldn’t prohibit them from hiring. Instead, he said, the cost trickles down, such as to the new employee’s salary.
“If you can’t increase the sale price, that means the employee is going to be paid less,” said Piascik. “I’m seeing that a lot. … The same jobs are paying less than they were two years ago.”
“A lot of talented people out there are willing to accept smaller pay for a bigger opportunity,” said Piascik.
Unemployment figures have improved in Virginia. In August, Virginia’s unemployment rate was 6.5 percent, down from 7.3 percent in June and 6.9 percent in July.
“In Virginia right now, we seem to be a little bit ahead of the nation in the recovery,” said VEC economist Bill Mezger. “At least that’s what the figures are showing.”
“Richmond, even with all the layoffs and problems it has had with Circuit City, LandAmerica and Qimonda, was still the seventh best metro area in the country [in August],” said Mezger.
The metro area had an unemployment rate of 7.7 percent in August.
Mezger said that he doesn’t think the higher unemployment tax will negatively impact employment but that it could slow it down.
“It may cause hiring to be slower and keep unemployment at present levels longer,” said Mezger.
Mezger said the state has depleted the unemployment benefits fund because the length of the recession has kept unemployment higher for longer and because people are taking longer to get back to work and drawing more benefits.
Barring unforeseen crises, Mezger expects the state unemployment rate to continue improvement into the fourth quarter and fall to between 6 percent and 6.5 percent by the end of the year.
Al Harris is a BizSense reporter. Please send news tips to Al@richmondbizsense.com.
I fail to see how the annual tax of $263 per year is going to dissuade businesses from filling a position if they actually need the added workforce.
For example, a full-time year-round salaried employee will be paid for 2080 hours per year. A $263 unemployment tax translates to approximately $0.13 per hour. For a worker with a hourly wage of $20, absorbing the full cost of the unemployment tax would represent approximately one-half of one-percent of their hourly take-home pay. Even for a minimum wage employee this would represent less than 2% of that employee’s hourly salary.
Any firm that claims the unemployment tax prevents them from hiring additional employees probably isn’t in the financial condition to hire new employees to begin with. This is a naked anti-tax push, using the specter of increased unemployment to mask the simple fact that businesses just don’t want to pay their fair share for the unemployment system.