Aloha from ProService Hawaii—

I recently returned from a bicycling trip through Oregon with my wife and three boys. We disconnected from our work and student lives, and connected as a family. We struggled up mountains, and were rewarded with spectacular views and exciting downhills. What we did not expect was that our biggest challenge would be riding into headwinds in the heat—much worse than uphills, potholes, and even rain. I was proud of all we did together as a family, supported by helpful guides who were there to coach and encourage us.

It’s just like how we try our best to support you and your employees through every challenge and opportunity. In 2022 the winds have changed dramatically, and now employers are not just facing headwinds, but a perfect storm of rising costs plus short-staffing, which is creating the risks of stagflation or recession. We are here to be your guide and coach.

So in this note I would like to cover two things. First, my market assessment. Second, our Roadmap for how we can help you manage your business to close out 2022 strong and plan for 2023. Lastly, we ask you to complete a short survey to help prioritize topics of interest and ways to engage with you.

Market Assessment

The Perfect Storm is building in ways large and small.

Looking purely at costs, a still-shrunk labor pool and competition for talent is driving up pay across the full spectrum of roles. And, effective October 1, Hawaii’s minimum wage rises to $12/hour. Wage compression is already increasing pay scales and this will add to it.

Another force is the Federal Reserve, which is driving up the price of money with rapid interest rate increases and has stated the need to push us into a growth recession to curb inflation, which will no doubt impact demand across our important industries, ranging from construction and real estate to tourism.

But even if we get pushed into recession, rising employer costs will not abate quickly. 2023 Healthcare and workers’ compensation premiums will rise across the market, driven by high 2021 and 2022 utilization coming out of Covid. And SUTA rates are scheduled to increase substantially next March—we will lobby the legislature, again, for moderation.

Lastly, add in our extraordinary staffing challenges, brutal even by Hawaii standards, which make employers less efficient and hammers profit margins. The size of the Hawaii workforce has declined since 2019—with some workers choosing to work fewer shifts or not at all, others leaving the state, and some of our most skilled people working for mainland firms recruiting here, when we are not recruiting there.

The stacking of these cost pressures in the face of potentially slowing demand is the Perfect Storm, and it's important that we all prepare. Our role and goal is to help you navigate through this.

Roadmap to Managing the Perfect Storm 2022-2023

On my bike ride, our daily roadmap got us to each day’s destination and kept us safe, hydrated and fed along the way. We have created the same for you. Please use these resources, and reach out so we can help you think through and solve your challenges.

• Early September: Prepare for Minimum Wage Increase. We will help minimize your workload as you plan and execute the minimum wage increase by October 1. Your payroll team will reach out with guidance on how to implement and remain compliant.
• September – December: Employee Retention Credit (ERC). You’ve no doubt been peppered with spam about the little understood ERC program, but ProService has already helped 574 clients apply for over $90 million in tax credits. ERC can significantly benefit Hawaii employers (up to $26k per employee) even if you’ve already taken advantage of programs like PPP. Interpreting the IRS guidelines and analyzing your payroll is tough and complicated; we urge you to work with us to ensure you get it right. If you have not yet applied, please reach out to us at [email protected] to begin the qualification process. You can still apply, but the deadlines are approaching.
• September – October: Insurance Renewals. We continue to negotiate and assess plan designs and care programs to contain insurance costs and deliver you the best possible rates and plan options. Over the past six years, we have saved our clients, on average, $2,400 per employee on healthcare and $2,800 per employee on workers’ compensation. These savings persist for most clients for years. We work hard at cost containment—which is more important than ever with inflation. Your healthcare renewal will be coming in the next few weeks.
• Healthcare Insurance & Voluntary Benefits Open Enrollment (OE). We will reach out to your designated OE leader with your 2023 packet. Please use our resources to select the mix of benefits that will retain your people while maximizing every dollar you spend. During our recent CEO Panel, three outstanding leaders shared how they are retaining their people while avoiding salary wars (Taking the Sting out of Rising Labor Costs). While there are pay scale issues for every employer, the most cost-effective way to compete is through your culture and Total Rewards benefits. We share proven programs, including work flexibility, 401k, FSA, and exclusive healthcare programs that ProService offers. Hawaii employees place a high value on these benefits, and your out-of-pocket costs can be minimal to zero.
• Workers’ Compensation Insurance. While we have seen inflationary pressures here, and rising claims, we were pleased to maintain the vast majority of you with your same rates again this year. We are seeing the rest of the market increase rates an average of +8.2% in 2022, and +6-10% in 2023.
• October: Webinar for Multi-State Employers. Having employees who work from outside Hawaii is complex, especially staying on top of regulations, procuring insurances, and dealing with multiple payroll tax and state agency requirements. We have a solution for you to hire or retain out-of-state employees, or retain employees who are moving. You don’t have to let employees leave if they can work remotely, and you can also actively recruit from outside Hawaii. We support this way of attracting or retaining employees and offer guidance as needed.
• October: Roadshow Coming to Communities Across the State. We’ve hosted more and more in-person events this year and are looking to take these on the road to increase our availability and support for you, everywhere across the State. Please look for more information coming and fill in the survey (link) to help us prepare for the topics and needs most important to you!
• November: Preparing for Year-End. Count on us to support you with the many year-end activities to care for and retain your employees, such as year-end bonuses, 401k contributions, spending accounts, and benefits eligibility. We will work with you to execute the transactions your tax advisor recommends. To help you streamline all these efforts, we will provide best practices in our Year-End Resource Guide.
• Early 2023: SUTA. In 2021, we successfully advocated to change the law and lower SUTA rates, which were scheduled to triple. We convinced lawmakers to pass a much smaller tax increase for 2021 and 2022. This coming legislative session, we will once again face the same challenge. We plan to again ask the leg to mitigate this increase, and ask for your help to do so.
• Everyday: Problem Solving and Continuous Improvement. Please, please always reach out to us with your business challenges and people questions. We’re here to support you and invite your honest feedback on how we can improve the way we serve you. As an example, we’ve heard that at times it’s been frustrating to get support via phone. As a result, in the next few weeks, we are making improvements to our phone system and staff scheduling which will make it easier for you to reach us and get timely support. With ongoing input into how we are performing, we will only be better able to meet your needs as you define them.

Reflecting back on my biking trip. I was proud of my family’s resilience— overcoming the challenges and appreciating the joys. I have seen and believe in the same resilience of Hawaii employers. 2020-21 surviving was thriving through the pandemic. 2022 is about adapting to very different forces impacting our businesses—the perfect storm of rising costs and short-staffing. Our commitment is to support you and innovate solutions to these challenges no matter what.

So here’s my ask of you. Please tell us your challenges and how we can help you the most.

Complete this short survey to let us know. We can’t do everything, but we will listen and try. We are looking forward to hosting events across the islands starting next month. Your input will ensure we are bringing you the most meaningful content and conversation as we connect in the months ahead.

With Aloha,

Ben Godsey

President & CEO