Gov. Ige Signs Bill Lowering Employer Contribution Tax Rate for Two Years

Governor David Ige signed House Bill 1278 which relates to the Unemployment Insurance Contribution Schedule for businesses and non-profit organizations.

Before the COVID-19 pandemic the Unemployment Compensation Trust Fund had a half billion-dollar reserve. By last June, it was drained, and the state began borrowing from the federal government.

The newly passed measure, sets the employer contribution tax rate at a lower level with Schedule D for 2021 and 2022.

The governor signed the measure in response to the unprecedented increase in Hawaiʻi’s unemployment rate due to the COVID-19 pandemic. Without intervention, Schedule H (the highest tax rate) would have been in effect for 2021.

“Temporarily reducing unemployment insurance tax rates will help to contain the economic fallout from COVID-19 and expedite the state’s economic recovery. I signed HB 1278 to protect employers from higher tax rates at a time when they can least afford it,” said Gov. Ige.

The measure allows employers to pay, on average, less than half of what they would otherwise pay into the system:

• In 2021, the average Schedule H tax on employers would have been $1,800 per employee, per year. Act 1 reduces the average tax to $850– for a savings of $950 per employee per year.

• In 2022, the average tax would have been $1,670 per employee, per year. Act 1 reduces the average tax to $790 – for a savings of $880 per employee, per year.

“I’d like to thank the Legislature for fast-tracking this measure, so the DLIR can implement the changes swiftly. This is another example of how the legislative and executive branches can work together to boost the state’s economic recovery.”

The Unemployment Compensation Trust Fund had a reserve of $607.5 million as of November 2019. The UCTF balance was depleted in June 2020 due to the extraordinary unemployment rate caused by the disruptions of the COVID-19 pandemic. The unemployment rate skyrocketed from 2.3 percent in March to 23.6 percent in April, because of measures taken to contain the state’s initial COVID-19 outbreak.

“The law allows the department to omit benefit charges for employers in their annual rate calculation due to the event of COVID-19 in calendar years 2021 and 2022 and authorizes the DLIR to provide relief for certain non-profit employers,” said DLIR Director Anne Perreira-Eustaquio. “Omitting the benefits charged to all contributory employers in 2021 and 2022 will result in a significant decrease in employer contributions.”

Setting the tax rate schedule at D will mean that all contributory employers will share in the replenishment of the UCTF and help re-establish the fund’s integrity. Schedule D’s tax rates are 0.2 percent to 5.8 percent while Schedule H’s rates begin at 2.4 percent to 6.6 percent.