If you’re a business owner and not dead, you undoubtedly noticed your cost of employment went up by a significant margin this year. There are good reasons for the increases.
In 2009, the administration in Washington, D.C., extended the term of unemployment benefits from 26 to 99 weeks. This was obviously going to cost a lot more money than any state or the federal government had in their budgets. It was an unfunded mandate. The kicker is that this is an employer tax and not an employee tax. With the threat of higher and higher taxes on job creators, the increase in this tax actually poses a threat to job creation. If employer costs are pushed high enough, employers stop hiring or let people go to survive.
When the states were mandated to offer 99 weeks of unemployment benefits, they didn’t have the funds to cover the liability. So in its infinite wisdom, the federal government supplied loans to cover the debt. Someone had to pay for the interest on that debt, but who? You guessed it – business owners.
This is a bit convoluted, so try to stay with me on this. The federal government mandates 99 weeks of unemployment benefits, for which no state has the budget. The federal government doesn’t have the money, either. When the states say they don’t have enough money, the federal government says “That’s OK, we’ll loan it to you.” When the states fail to pay on time because there just isn’t enough money, the federal government levies an interest penalty on the state. The initial assessment from the federal government is $21 per employee — a total of $210 for 10 employees. Business owners will see this on their 2012 fourth-quarter return — the 940.
These interest penalties are predicted to rise in coming years.
So back to the “bills” delivered to business owners. Since the state was unable to pay for the cost of 99 weeks of unemployment benefits, they’re being penalized by the federal government. As a consequence, every employer who had an unemployment claim has received a “bond interest assessment billing statement.” This is a bill for the interest only portion of the debt related to the federal loan for unemployment. This was due Oct. 1, 2012. In our experience, for a business with 20 employees with average wages, this bill was about $200.
Another change in Colorado is to the total dollars for which an employer pays unemployment. Employers used to pay up to $10,000 in wages. That has now changed to $11,000. So not only will your rate increase, but the total dollars you pay that rate against also will increase.
Those who study these statistics estimate the cost of unemployment insurance in Colorado will increase to employers by about 150 percent by 2014. Some states could see increases of up to 250 percent. (Source: Department of Labor unemployment insurance statistics.) According to the Department of Labor, the per employee cost of unemployment in Colorado in 2012 is about $63 and could climb as high as $150 by 2014.
The interesting thing about this tax is it is assessed only on employers and is unpaid, unseen, unfelt and not discussed by employees. The present administration gave a 2 percent cut to all employees on their share of FICA. Primarily this money is supposed to be put into the Social Security “trust” (slush) fund. At a time when the solvency of Social Security is at risk, why would you decrease payments into the fund?
This administration has a track record of taxing employers, the job creators, and giving handouts to those not working.
The bottom line on this is that if you’re an employer, it’s getting more expensive and more regulatory changes are coming. You can bet those changes are going to make your life more complicated and running your business more expensive.
I highly recommend taking time to educate your employees. Let them know about the consequences of these policies and how they affect employment opportunities and the total dollars available for wages. The general invasiveness of government is increasing and compliance issues are going to get very complicated if the government proceeds as planned.