While much of the focus of unemployment insurance changes made last session has been on the negative impact it will have on workers who have lost their job through no fault of their own (and for good reason), relatively little has been written about the financing changes that impact employers.
This is an important piece of the story. Employers have always paid unemployment insurance taxes on covered employees as the source of funds for the unemployment insurance system. North Carolina’s average employer contribution prior to HB4 ranked the state 30th for its low level. And yet, policymakers undertook very few changes to the way in which employers will pay into the unemployment insurance system moving forward putting the system at potential risk when another downturn happens.
- The elimination of a zero tax for approximately 24,000 employers so that everyone is paying into the system. Ensuring all employers paid in was a good change.
- The increase in the maximum rate to 5.76 percent will be insufficient to address the long-term solvency challenges of the system and results in roughly an additional $15 per employee in taxes.
- Finally, the adoption of a formula approach rather than tax schedules will mean that some employers will pay a lower tax rate than under prior law despite being similarly situated. Small changes in their number of employees could also drive significant changes in their tax levels.
Bottom line is that the combined impact of tax and benefit changes will mean employers will pay far less than they would have under the previous system. And there were better choices available.