“Success is not final. Failure is not fatal. It is the courage to continue that counts.”
-Unknown (often attributed to Winston Churchill)
I have a victory I want us to celebrate together.
The Hawaii State Legislature has passed HB 1278 and, with the Governor’s signature next week, employers will avoid catastrophic payroll tax increases in 2021-22. This is a remarkable win for our Hawaii businesses, our community, and our economic recovery.
What Was at Stake?
The short answer is “a lot.”
As a quick refresh, Hawaii employers are 100% liable for the cost of unemployment insurance which we pay through payroll taxes. These funds are held in a trust fund. When Covid-19 hit and unemployment sky-rocketed to an unprecedented 23.8%, the trust fund sank to a $1 billion dollar deficit. The State obtained a federal loan to cover the deficit.
To satisfy the payment of the federal loan and replenish the unemployment trust fund, current State law mandates that Hawaii employers bear the full burden by increasing payroll tax rates to Schedule H, the highest level on the tax schedule.
To put this proposal in perspective, if passed, employers would have faced an average tax increase of $1,200 – $1,500 per employee. Highly impacted businesses such as restaurants, retailers, and hospitality who suffered the deepest unemployment claims during Covid-19 would have been hit harder.
Our view has been that this would be the final blow to many Hawaii businesses, stall our economic recovery, and it misplaces financial responsibility for pandemic policy on Hawaii businesses.
Enter HB 1278.
HB 1278 allows for a modest increase in payroll tax.
After five years of flat payroll tax rates, HB 1278 sets forth a moderate increase in payroll taxes for 2021 and 2022. This means that instead of businesses seeing their rates more than double, on average, rates will go up by a little more than half of a percent (60 basis points) in 2021 and remain flat for 2022. While still an annual increase of about $260 per employee, on average, it’s far less than the $1200 -$1500 per employee increase that current law dictates.
In addition, the high claims costs from 2020’s business shutdowns will not be counted against employers.
More than a big win for all employers in Hawaii and our economic recovery, HB 1278’s moderate increases are a big win for the people of Hawaii.
Thank You For Your Advocacy.
Many hands worked on this issue. Over 350 ProService clients joined us to submit testimony, advocate for modest rate increases, and argue that business should not bear the full costs of the pandemic in Hawaii. There has never been a better example of our defining core value – “Clients are Partners” – than the work we’ve achieved here together. We could not have achieved this without you, and it proves how much better we all are together.
I also want to say thank you to the team at ProService. Nelson Befitel, our Chief Counsel, and his team took the lead on this issue from the start. They identified the issue last year and worked tirelessly to educate and build a collaborative effort to address and remediate this tax issue. This was the second time around for Nelson on this issue, as our team led this fight in 2010 and successfully stemmed a huge tax increase following the Great Recession.
What Happens Next?
Once HB 1278 is signed into law, the new 2021 taxes take effect. When that happens, we will receive a tax notice from the State in mid-March and the 1Q payment is due at the end of month. When this happens, ProService will be passing through this tax increase. We cannot provide you with exact details on the rates and costs until these rates are entered into our system, but you should expect that there will be a small increase in late March.
While no increase in costs is welcome, this increase is unavoidable and necessary. We hope that our Pandemic Rebate, which you have been receiving each month on your invoice for the last six months, helps you as our local economy recovers.
Moving Forward Together.
Our work together has just begun. Hawaii employers still face many headwinds. If we want a strong local employer base, we need to protect it during this time. It needs to become important and the conditions to support a thriving ecosystem of local employers must be nurtured. Some of this is starting, and we must have the courage to continue. As we move forward, I encourage all of you to advocate on the importance of supporting Hawaii employers. Together we have the opportunity to build a Hawaii that is better than ever.