Hawaii $151 Million Unemployment Tax Cut Package Becomes Law

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A package passed by Hawaii lawmakers that would save businesses an estimated $151 million over the next three years has become law.

The new law, which takes effect Jan. 1, 2008, will drastically cut the taxable wage base used to calculate what employers pay in unemployment insurance taxes for each worker. At the same time, the law will increase the benefits paid to unemployed workers.

The changes are possible because of the state’s low unemployment rate and steady job growth. Only 2.4 percent of the state’s workers were unemployed in April.

As a result, the state’s unemployment insurance fund has grown to nearly $540 million.

According to the Gov. Linda Lingle’s office, the balance is “more than enough” to pay the state’s annual unemployment expenses — about $90 million a year for the past two years.

“Instead of having this money sit idle in the state’s unemployment insurance fund, employers can now use this money to reinvest in their business and their employees,” the governor said.

And unless the state suffers a “severe and unexpected economic downturn,” the state Department of Labor and Industrial Relations said the fund, with the lower payments, still will total more than $400 million at the end of 2010.

Tim Lyons, executive director of the Hawaii Business League, said businesses had lobbied for a bigger break for employers. But Lyons said he was satisfied with the new law.

“Considering the legislative process that goes on, that of being one of give and take, it’s a good bill,” he said.

Under the new law, the taxable wage base for unemployment insurance payments will be $13,000 of an employee’s gross pay. That’s down from the current $35,300 — which Lyons said is the highest in the nation.

Businesses had, however, sought a drop in the wage base to $7,000, which is the federal limit. But the new law still will mean substantial savings per employee for employers, Lyons said.

“That’s not too shabby, actually, in the world of business,” he said.

At the same time the maximum weekly unemployment benefits for those who lose their jobs will go from 70 percent to 75 percent of the worker’s average weekly wage.

The law will also raise the earning “disregard” from $50 to $150, meaning workers who hold a part-time job or have other forms of income will also be able to keep more of their unemployment check.