Increases in unemployment insurance rate could impact small businesses

SALT LAKE CITY — Some changes in the way revenues are collected by the state to fund unemployment claims could have a big impact on small businesses.

This month, the Utah Department of Workforce Services posted a letter on its website, explaining to employers that the contribution rate for Unemployment Insurance would increase for 2011. DWS attributed the need for the hikes to "the higher benefit costs associated with the economic downturn" resulting in "a significant decline in the Utah Unemployment Trust Fund balance over the past two years."

The UI Trust Fund is the pool of money collected from all state employers to provide benefits to laid-off workers.

The agency went on to explain that the increases became necessary to guarantee adequate reserves "to ensure the long-term solvency of the fund."

DWS said it would increase the minimum contribution tax rate from 0.2 percent for 2010 to 0.4 percent for 2011 — a 100 percent hike that would affect approximately half of all Utah employers.

While many in the local small business community understand the need for periodic increases to maintain the solvency of the fund, some question the wisdom of such a dramatic increase and expressed apprehension about the potential negative effect it could have on small employers.

"At a time where everyone is looking for ways to stimulate the economy and stimulate jobs, for (DWS) to raise (rates) ... it could cause significant concerns for small businesses going forward," said Aaron Call, regional vice president for G&A Partners — a professional employer organization that provides human resource outsourcing to small businesses.

Another issue Call cited was that the rate for new employers went up dramatically as well.

"Any business wishing to incorporate and get started in 2011 will see a much higher starting rate then they would have in 2010," he said. "That is one quick way to stall the economy — impose additional 'barriers to entry.'"

As an example, he mentioned that new employer rates for his industry jumped from 1.3 percent in 2010 to 3.3 percent for 2011 — a full 250 percent increase.

"To put that in perspective, if a business did $2 million in taxable wages in a year, the adverse impact will be $40,000 annually," Call said. "In a 'tight margin' economy, that kind of impact could be devastating."

His concern was echoed by Betsy Burton, owner of the King's English Bookstore in Salt Lake City.