Maryland business owners say a drop in the state’s unemployment insurance tax could mean a few less hours for them, and a few more for employees.
Gov. Martin O’Malley and Department of Labor, Licensing and Regulation Secretary Leonard J. Howie III announced Monday that the state’s unemployment insurance tax will drop in 2013, with some businesses seeing their rate decrease as much as 55 percent.
For Del. Ronald A. George, an Anne Arundel County Republican who also owns Ron George Jewelers in Annapolis and Severna Park, the reduction could mean less time spent on things like managing his business’s financial books, a task George said he took on during the recession.
“Many small businesses let bookkeepers go, and the store owners do the bookkeeping at home at night, and it’s a lot of extra hours,” George said. “I’m sure they’d love to hire bookkeepers. Business owners are anxious to be able to rehire because many of the small businesses, the owners have taken on more to make ends meet.”
The rate change will go into effect because the unemployment trust fund increased to $794.5 million this year from $460.2 million at this time last year. The increase triggers an automatic tax cut, based on a system set up by the General Assembly’s Joint Committee on Unemployment Insurance Oversight. The idea was to keep the trust fund solvent in times of high unemployment.
But some businesses have been choked by the tax, as owners were forced to pay the maximum amount of unemployment insurance taxes for the last several years, since unemployment skyrocketed in 2009. The maximum range chart, called Table F, makes the rate between 2.2 percent and 13.5 percent of the first $8,500 in annual wages paid to employees. The range beginning Jan. 1 will be between 1 percent and 10.5 percent, known as Table C.
Each individual business’s rate is determined by the number of employees a business let go in recent years.
In George’s case, he should see a nice cut in his tax rate. He has 12 employees now, up from 10 during the worst of the recession.
But even those business owners who did have to let employees go will see their rate reduced, perhaps allowing them to spend that money on new employees.
“The ability to lower the unemployment tax rates is a sign that the state’s economy is improving,” Tom Hood, CEO and Executive Director of Maryland Association of CPAs, said in a statement. “We must stay vigilant and continue working together to improve employment and return the Trust Fund to its $1 billion fully healthy position.”
Ernie Brodbeck, CEO of Neschen Americas Corp., an Elkridge-based commercial display manufacturer, said the cut means businesses will be able to take a bigger bite out of Maryland’s unemployment rate, which has ticked up to 7.1 percent following several months of stagnant-to-moderate job growth.
“That’s pretty positive,” said Brodbeck, a member of the Baltimore Washington Corridor Chamber’s board of directors. “The rates … had a significant impact on our employment costs.”
Brodbeck said Neschen’s 100 employees could see some of the company’s tax savings, depending on how steep the company’s cut is. The state will notify businesses of their tax rate at the end of this year.
“For a company our size, with health care costs rising and demands to keep a talented workforce on your payroll with salary and other types of increases, this is something we can use to give back to our existing employees as well as bringing on additions,” Neschen said. “The proof’s going to be in the details. … This is a first positive step.”
For businesses trying to fuel a sputtering economic recovery, the tax cut comes as welcome news, George said, in the midst of several tax increases approved by the legislature in recent years.
“My personal property tax has gone up, my business licenses have gone up,” George said. “When you add everything together, it becomes one big hard hit. Any relief is surely welcome.”