Is New SC Unemployment Insurance Tax Rate Punitive?
As the nation’s economic recession hit its peak, South Carolina borrowed $933 million from the federal government to pay unemployment claims. To help repay that money and make the unemployment trust fund solvent again, legislators last year approved rate changes to the amounts the state charges businesses for jobless benefits, a move that has some companies crying foul.
The legislature, with input from The Lucas Group, a Boston-based consulting firm, created 20 categories for SC businesses, levels based on a company’s experience using unemployment claims. Those whose employees filed few or no claims have the lowest rates, while those whose workers filed the most claims have seen the largest increases. Critics point out that businesses falling in tiers 1-12 — representing 53 percent of all the state’s companies — pay little unemployment insurance taxes. Those in tiers 13-20 — the remaining 47 percent, which includes many SC manufacturers and staffing agencies — have seen dramatic increases in their rates.
State Senator David Thomas, R-Greenville, chair of the Senate Banking and Insurance Committee, is trying to provide some relief. He held a meeting in his district to address concerns over the tax. “We had 17 manufacturers and several staffing companies send people,” he says. “One of their main concerns is the tier system. There’s a huge increase in the tax rate when you go from tier 12 to tier 13. Businesses in the lower tiers are concerned because it’s a moving target. Next year they could jump up to, say, tier 14. No employer should feel safe. This structure will keep South Carolina in a recession and make sure we will not recover.”
Todd Bennington, CEO of Borg-Warner in Seneca, says that the legislation does include some good reforms, but the tax situation is unsettling. “Some companies are seeing tens of thousands of dollars in unplanned expenses,” he says. What’s more, the new formula was not unveiled until late November, long after most companies began their fiscal years with budgets already in place. “It’s almost punitive.”
Some business leaders fear the new rates will discourage large companies from hiring new employees as the economy begins its uptick. George Roper, owner of Roper Personnel Services in the Midlands, says he’s heard some companies claim they were considering expanding operations, but now they will do that somewhere other than South Carolina. “Others implied they’ll pick up and move,” he says.
But Greg Ryberg, R-Aiken, chair of the Senate Labor, Commerce and Industry Committee that produced the rate plan, says the new system is fair. In defending his committee’s decision, Ryberg points out that in a seven-year period between 2003-2010, the group of businesses using the unemployment trust fund the least subsidized those businesses who used it most, resulting in the nearly $1 billion shortfall. The senator says the new system is equitable because going forward, “Those who use, pay. Those who don’t, don’t pay as much.”
Roper believes considering only the seven-year period is one of the system’s flaws. “Two of those years, 2008 and 2009, are what I call the ‘Katrina’ years as far as the economy is concerned. They were devastating. I’ve been in business here for 30 years. Do the other 23 years not count for anything?” he asks.
Both lawmakers and business leaders agree that the loans must be repaid and the trust fund replenished; however, the state has a five-year period in which to repay the federal dollars. “The problem,” Bennington says, “is that the tax is front-loaded, and companies haven’t had the opportunity to properly budget for it. My question is why does the payback seem accelerated?”
Doris Lockhart, owner/manager of TempForce, LP, DBA AccuStaff in Florence, has seen her unemployment tax rate rise appreciably. “The notices went out so late, we were blindsided. I’d say it’s definitely had a negative effect. In effect, we’re acting as tax collectors for the state.” Ironically, even though the legislature adopted these new rules, Lockhart is bound by contract for employees she provides to state offices and, because of the contract terms, cannot increase rates to offset losses due to the new tax.
A Columbia business owner, who spoke on the condition of anonymity because the senate committees’ decisions directly affect his operations, had this to say. “In my opinion the legislature got sold a bill of goods by this out-of-state consulting group and didn’t have a clue as to how it would impact businesses. The legislature is neither anti-business nor pro-business; they are pro-lawyer and encourage people, especially the least-educated and hardest-to-employ, to remain jobless.”
To help businesses, Thomas would like to see the rates rolled back by 40 percent on tiers 13-20. Ryberg says he’s willing to listen to any new proposal, but it will have to be proven fiscally sound.