The Unknown Cost

January 25, 2010

The main topics being spun in Washington lately have been Health Care and the Bank bailout. What has been lost in the discussion is what must be done to get the economy moving and providing jobs for America. That seems to be the mantel that President Obama is just starting to pick up.

Every month the experts look to see the latest unemployment data; this proves to be a strong indicator on how and if a recovery is sustaining. Unfortunately, the unemployment report continues to be dismal. Just last week, I saw an article saying that layoffs were higher than expected in December 2009.

The unemployment rate is still over 10% and this will continue to play a large roll in supporting the economic recovery.

How does this all effect me?

Everyone reads about the rising unemployment, but have you ever stopped to think what this means for your company? You may say, “We have not had many layoffs, so it doesn’t really effect us.”

Don’t be too quick in making this assessment.

The unemployment is a state fund that all employers pay into. Each employer basically has a checking account with the state to help fund claims. The state assigns a rate to each employer, which determines what percentage of payroll is paid into the fund to pay for claims. The state will then notify each employer as to how much they have taken out of this account in payment of claims.

Seems simple enough!

Because of the high rate of unemployment, more dollars are being paid out in claims and there is not enough money in the fund to support these claims. We were lucky last year because part of the bailout went to funding this shortfall.

But, how does the state address this shortfall in funding?

If you look at the unemployment rating structure set up in New Jersey, you will see that there are six tables the state can use to fund unemployment. All they have to do is switch what table they use in assigning the rate and without notice you have just received a tax increase.

As an example: Suppose your company has a positive reserve ratio between 4% to 4.99%

In 2008 – the state assigned your unemployment rate from column A….. your unemployment  rate would have been 2%.

In 2009 – the state started assigning your unemployment rate from column B…. your new unemployment rate would have been 2.6%.

A 30% increase and nothing really changed!

In 2010 – the state is now looking to fund unemployment from column E+10%, guess what your new rate will be?….. 4.1%

That is over a 57% increase from last year. The rate would have doubled since 2008!

Note: This is just not happening in New Jersey, every state is faced with the same dilemma………. How do we fund the higher claim levels?

What is your current rate?

When was the last time you validated that your unemployment rate is correct?

Now more than ever, it would be prudent to ask this question.

There may be a mistake in the calculation or we may offer options that may help to minimize the potential increases in the long term.

We offer a free analysis of your existing unemployment rate.

Would you like to know more?  Email george@hbsadvantage.com or call 856-857-1230

Unemployment is the 2nd highest employer mandated tax on employers. It is the only tax that you have as an employer, have the opportunity to determine what your rate should be.

To learn more about how the unemployment tax effects your business, you may visit our website www.hutchinsonbusinesssolutions.com or feel free to contact us.

 

As reported in Bloomberg

 

July 10 (Bloomberg) — The number of Americans collecting unemployment benefits climbed to the highest level since December 2003, reflecting a deteriorating job market that threatens to hurt consumer spending.

 

The total number of people collecting benefits rose 91,000 to 3.202 million for the week ended June 28, the Labor Department said today in Washington. First-time jobless claims fell more than forecast in the week ending July 5 to 346,000, a figure distorted by annual July shutdowns at auto plants.

 

Rising unemployment will contribute to the weakest gain in consumer spending since 1991 by the final three months of the year, according to a monthly survey of economists by Bloomberg News. Starbucks Corp., the world’s biggest coffee-shop chain, and IndyMac Bancorp Inc., a lender hurt by the mortgage collapse, are among companies announcing job cuts this month.

 

“The important thing here is the continuing rise in continuing claims,” said Russell Price, senior economist at H&R Block Financial Advisors Inc. in Detroit. “It shows a pattern that the labor market continues to deteriorate, and the people laid off are certainly having a difficult time finding employment.”

Our Perspective:

The fragile economy continues to play havoc with the job market. Uncertainty rules. What is being done to look forward, get the economy and job market moving again? This is a discussion that is needed.

Sore subject

I am not trying to be controversial, in the past the government instituted workfare programs designed to rebuild our infrastructure. Our infrastructure is falling apart and steps must be taken to improve and modernize them. Could workfare provide an avenue? This would improve the quality of life thruout the US and also get the masses back to work. 

This is only one idea, I am sure there are many mre that can be brought forward to keep America moving.

Let us know your thoughts?

You may email george@hbsadvantage.com