UI reduction to save employers millions

LOWERING RATES: Robert Langlais, assistant director for income support for the R.I. Department of Labor and Training, with Ginny Howard, left, chief of employment operations, and Jennifer Kinch, principal manager. With federal loans paid off and unemployment reserves starting to rebuild, state officials felt unemployment insurance rates could be lowered. / PBN PHOTO/­MICHAEL SALERNO
LOWERING RATES: Robert Langlais, assistant director for income support for the R.I. Department of Labor and Training, with Ginny Howard, left, chief of employment operations, and Jennifer Kinch, principal manager. With federal loans paid off and unemployment reserves starting to rebuild, state officials felt unemployment insurance rates could be lowered. / PBN PHOTO/­MICHAEL SALERNO

For the first time in a generation, Rhode Island has inched away from the most expensive tier for unemployment insurance rates paid by ­businesses.

The reduction in the unemployment-related tax rates, which took effect in January, will be felt by employers when they pay their first-quarter taxes, according to state officials. The impact will vary, depending on the business, because the rates they pay are different depending on how often they have drawn on the state-managed fund.

In the aggregate, the shift will save employers $30 million in 2017, according to Gov. Gina M. Raimondo’s office, which sought the reduction as part of last year’s budget.

The governor’s office, in a news release in January, estimated the impact to be a $77 tax cut per employee for businesses.

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Unemployment insurance provides temporary income support to workers at Rhode Island employers who have lost their jobs through no fault of their own, including through layoffs and plant closures.

It is funded from state and federal taxes paid by 33,000 employers, according to a state notice.

Since 1992, Rhode Island companies have followed tax schedule I, the highest of nine schedules. Effective Jan. 1, Rhode Island employers now will be shifted to a revised schedule H, which reduces the rate range from .99 percent to 9.59 percent. Previously, employers paid anywhere from 1.69 percent to 9.79 percent.

The rate is applied to the taxable wage base per employee, which by state requirement is now $22,400 for 2017. The base amount rose by $400 this year because it is set by law at 46.5 percent of the annual wage in Rhode Island.

The increase in the annual wage, as well as the slow rebuilding of the unemployment reserves in Rhode Island, both reflect a strengthening economy. As employers have laid off fewer workers, the state has been able to both repay its previous loans for funds to the federal government, and rebuild its reserve.

Contributing to that healthier movement was a series of changes made under former Gov. Lincoln D. Chafee’s administration.

In 2011, in the depths of the recession, the state was borrowing money from the federal government for unemployment benefits. The state approved a narrowing of benefits to more closely hew the Rhode Island benefits paid to unemployed workers to those of surrounding states, according to Robert Langlais, assistant director for income support with the R.I. Department of Labor and Training.

In general, the Rhode Island benefit formula had been paying recipients 60 percent of their average wage. That amount was lowered in 2011 to 50 percent, the same as Massachusetts and Connecticut.

In addition, the Rhode Island maximum weekly payment was frozen at $566. And the highest wage is now determined based on the average of two quarters, rather than a single quarter, to avoid artificial inflation due to overtime payments.

Another change, also begun in 2011, made recipients who receive a severance package wait until it ends to begin receiving their weekly state benefit.

“The feeling was, if you’re getting paid for six weeks, we don’t want to double that,” Langlais said.

The combination of benefit reductions resulted in a faster repayment of the federal loans, which had subsidized the program through the recession. By December 2014, the state had erased the deficits in the state pool, and by 2015, had repaid all of its federal loans.

Between December 2015 and December 2016, employers added $134 million to the state pool of funds for unemployment, called the Employment Security Trust Fund. It has now grown to the point where state officials felt the rate paid by employers could be lowered, Langlais said.

As of December 2016, the fund had $271 million in it, up from $16.3 million two years prior. In the 2016 calendar year, the state paid out $138.9 million in net unemployment benefits, a significant decrease from the $232.8 million paid out in 2012, according to state figures.

If the positive employment trends continue, the state will be in a position next year to further lower the unemployment insurance rates, Langlais said.

“It’s a matter of balancing. It can help employers so they can hire additional people. If you look at the ratings, we’re one of the highest [tax-wise] in the country,” he said.

In fact, the nonprofit Tax Foundation in September 2016 ranked Rhode Island as having the worst unemployment insurance tax structure in the nation. Overall, the state placed seventh-worst for tax competitiveness among other states.

State officials say they hope the gradual reduction of that tax burden pays dividends.

In a statement, House Speaker Nicholas A. Mattiello, D-Cranston, said the unemployment insurance rates are a “significant obstacle” to small business.

“I am proud that we listened to the small-business community and were able to provide meaningful relief on this cost driver,” he said. •

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