Decline in Unemployment Leads to Decreased Contribution Rates

Unemployment insurance contribution rates for 2015 will be reduced by 22 percent on average, according to an announcement by the Hawai’i State Department of Labor and Industrial Relations Monday.

The result of the reduction means employers will be paying $50 million less in taxes in 2015, which is about $100 less per employee on average.

Since December 2010, the unemployment rate in the state has dropped from 6.8 percent to 4.1 percent. The drop in unemployment helped to replenish the Unemployment Compensation Trust Fund.

In October, Hawai’i was ranked as having the sixth lowest unemployment rate in the United States and the civilian labor force reached a record of 667,750 people.

“This is welcome news to many small businesses throughout the state who can now consider investing the savings in their businesses and personnel,” said Governor David Ige. “The Trust Fund is designed to replenish its balance when times are better so the taxes on employers do not rise when the economy falters and when employers can least afford higher taxes.”

In 2010, the Unemployment Compensation Trust Fund went bankrupt and the state was forced to borrow $183 million to pay out benefits. Since then, the fund balance has grown to nearly $400 million.

Maintaining the Unemployment Compensation Trust Fund to an adequate reserve level, where the balance necessary is available to out a year of benefits, is the goal of the unemployment insurance financial structure.

Currently, the reserve is at 0.99 of the adequate level, which is about 12 months of benefits.

“Unemployment benefits play a major role in stabilizing the economy during recessions by maintaining the purchasing power of those without income from employment, and DLIR’s duty is to protect employers against the double ‘whammy’ of diminishing profits and rising unemployment taxes during recessionary times,” said DLIR Director Dwight Takamine. “Unemployment benefits also provide the ability for a worker unemployed through no fault of their own to put food on the table and shelter over their family while they search for another job.”