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A level field for UI tax burden

Bill: Firms that cut jobs would pay larger share

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    New Jersey employers can expect to pay $137 more annually per employee in unemployment insurance taxes starting July 1 — but the actual increase will differ for each business, under a bill advancing in the Legislature.

    How this increase affects businesses could be affected by a bill advancing in the Legislature that would shift the tax burden, with most employers seeing smaller increases while employers with more layoffs see higher tax hikes.

    The bill, S-1121 and A-2222, is based on a recommendation from the state unemployment insurance task force and has garnered unanimous support from business and labor representatives. But employers with a lot of turnover would be adversely affected, as the tax burden would shift to companies that regularly lay off staff, like seasonal businesses.

    Bill sponsor Assemblyman Joseph V. Egan (D-New Brunswick) said the bill was a matter of fairness. He said employers that frequently lay off staff pay less into the UI system than their former employees receive in benefits; his bill is “trying to reward the employers that don’t lay a lot of people off, but are subsidizing people that lay off a lot of employees,” he said.

    Laurie Ehlbeck, state director of the National Federation of Independent Business and a member of the UI task force, said the current system did not penalize employers once they reach the highest level of layoffs.

    “We felt that once people reached the top limit, it didn’t matter how many people they laid off, because they were still paying the same rate,” Ehlbeck said.

    If the bill is enacted, the maximum tax increase would be $787.80 per employee for employers whose former workers have received the most UI benefits, while employers on the opposite end of the spectrum would see an increase of $90.90 per worker. Without the change, the increase would be $181.80 per employee at both ends of the spectrum.

    UI tax increases are being phased in over a four-year period, after legislation was passed to avoid a massive one-year increase in July 2010. The average per-employee tax has risen from $794 in 2009 to $947 in 2010, $1,045 in 2011 and $1,182 this year, according to state Department of Labor and Workforce Development statistics.

    The final increase is scheduled to occur in July 2013, when the per-worker average would rise to $1,298. The tax is paid for each employee’s salary up to the current wage base of $30,300.

    The steep increases are due to the large increase in unemployment due to the recent recession, combined with a 14-year period from 1993 to 2007 when the state diverted $4.7 billion from the unemployment insurance trust fund to pay for other expenses.

    Joe Olivo, owner of Moorestown-based Perfect Printing, expressed wariness about the impending increase.

    The owner of the 45-employee business said he has seen the equivalent of a $653-per-employee UI tax increase, much higher than the averages published by the state. He added that he had gone through a 20-year period without employee layoffs before 2009, when he had to lay off nine workers, or 20 percent of his staff.

    Olivo said even if he knew the employer reserve ratio used by the state to calculate the UI tax, he wouldn’t know how to apply it to the impending increase, let alone how to understand how the proposed bill would affect it.

    “Really there’s not much I can do about it — I just pay it,” he said.

    Olivo said he would support any measure that would lower his UI tax increase, with reservations.

    “It’s certainly a good thing” if there is a reduction, Olivo said. “Unfortunately, I’m just so skeptical of this whole UI tax fiasco,” based on his experience.

    Under the bill, roughly 12,000 of the state’s employers would see a higher increase, while 119,000 would see a lower increase and 94,000 would see no change in their increase.

    State Sen. Fred H. Madden Jr. (D-Turnersville) said the measure would take some of the sting out of the increase.

    “All of the best of the businesses in the state have to subsidize” employers that take the most out of the system, he said.

    Madden also said businesses that rely on seasonal employees wouldn’t be unfairly affected by the bill, which will serve as a disincentive to lay off workers. He noted that large employer groups like the New Jersey Business & Industry Association support the change. “They understand that there’s an imbalance,” he said.

    Madden also noted employers should start seeing UI tax cuts once the system is stabilized.

    The steep increases of recent years should not be repeated, due to a law enacted last year. This measure will slow the pace of tax cuts, allowing the UI trust fund to build up a reserve.

    “It’s just a more solid and firm way of doing business,” Madden said.

     

    E-mail to:  akitchenman@njbiz.com
    On Twitter:  @Kitchenman

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