Hit After Hit

Is it a surprise to anyone that our payroll taxes will be increasing to cover the huge unemployment hit from COVID? Or that California has a new bill going through the legislature that could be very costly to employers?

Job Killer Bill

A bill, AB 1192, has been deemed by the California Chamber of Commerce as a job killer. This bill would require employers to provide annual reporting of wage and hour data and employee benefits for all employees in the

U.S. The plan is to then share that information on the web so employers will be publicly shamed for not providing more pay or benefits… even when they are not legally required to do so. The expectation is this would result in frivolous litigation and settlement demands.

Unemployment Fund Depletion

HR JungleWhen California runs out of money in their unemployment fund, they borrow from the feds. California’s unemployment fund is nearly $22 billion in debt to the federal government based on what was paid out through early April, 2021. The expectation is that our unemployment fund will go further in the hole by the end of this year… to a negative $40 billion. Even during the Great Recession, the debt was only $10 billion and it took nearly a decade to pay off that loan with increased payroll taxes.

There are only 20 states that went into unemployment debt because many used some of the CARES Act funding to lower their debt. However, California didn’t do that and now we lead the pack with the highest debt. The runner up is New York with $10.2 billion in debt… less than half of our debt. The other 18 states are mostly under $1 billion in debt.

What does this mean to your company? Based on current laws regarding our two consecutive years of fund insolvency, tax increases will begin in 2023 and will continue until the fund is again solvent. Normally, when there is a plus amount in the unemployment fund, you pay 0.6% unemployment tax for the first $7000 each employee earns. But each year we continue to be in the hole, we’ll see that tax increase by 0.3%. After 18 years, we will max out on those tax increases but the difference we’d be paying would be $420 (the max) per $7000 versus the $42 we paid before the fund went into the hole.

Higher payroll taxes often affect a company’s willingness to hire. However, you know we’ll bite the bullet if it becomes necessary to hire to fully recover from the devastation experienced over the past year. The federal government is unlikely to provide assistance or forgiveness for the amount owed but people are reviewing the language of the American Rescue Act to determine if there might be some help there. We can only hope!

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