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Manufacturers say rising jobs tax could stall hiring


By Scott Miller and James T. Hammond
smiller@scbiznews.com
jhammond@scbiznews.com
Published Feb. 14, 2011

Several manufacturers said today they may postpone hiring or even relocate expansions to other states after receiving increases of 200% or more to their employment insurance tax bills.

Gov. Nikki Haley, meanwhile, stood her ground on the new rates, arguing that the new structure taxes those businesses that have historically had the most claims.

The state Legislature reformed the employment insurance fund last year so businesses that laid off employees paid more than those that didn’t. The added revenue is needed to cover the rising number and value of unemployment checks, as well as to repay federal loans South Carolina took out because it lacked funding to pay benefits.

“Sen. (Greg) Ryberg and Rep. (Kenny) Bingham did an amazing job in leading the charge on the unemployment reform,” Haley said following a news conference in Columbia today. “The reason you are hearing some complain and the reason you are hearing some stay quiet is because that reform says if have had a lot of claims, you are going to pay for it. If you have not had a lot of claims, you are no longer going to be punished.”

Opponents of the reform, however, gathered in the Greenville office of Republican Sen. David Thomas hoping for a fix. They say the state used recessionary-inflated layoff figures in calculating the new tax rates. The crafters of the reform looked at companies’ employment history over the past seven years in creating a 20-tiered tax system, Thomas said, even though some of the companies most impacted might not have laid off anyone in the decades prior.

Under the new system, companies in tiers 13 to 20 pay rates ranging from 5.11% to 10.67%, while tiers 1 to 12 pay between 0% and 2.67%. Additionally, tax rates apply to $10,000 in wages per employee, up from $7,000.

“The computations are not right or fair,” Thomas said. “It’s becoming a penalty to hire folks.”

Thomas supports temporarily suspending loan repayments to the federal government until the state can find some relief for companies in the upper tiers, without increasing the tax that companies in the lower tiers pay.

Representatives of more than 30 businesses packed a conference room at Thomas’s office this morning to call for a change. Staffing agencies with clients throughout the state organized the meeting.

Todd Bennington, plant manager of Borg Warner in Seneca, said his company didn’t have time to budget for the increase. The automotive supplier ramped up production to meet rising demand just before receiving its tax bill this month.

“I put people in place, and now I’m being punished for it,” he said.

Additionally, some of the company’s contractors are passing along their higher costs related to this tax increase, Bennington said.

Debbie Croft, director of human resources for Bosch in Anderson, said her company has put more money into the employment insurance fund than it has taken out because of layoffs over the past 30 years. Several other company representatives at Thomas’s office this morning made the same argument.

Larry McAdams, vice president of human resources at Kemet Corp. in Simpsonville, said his company could reconsider its plan to expand manufacturing here because of the added cost of employment insurance. In late 2009, Kemet received a $15.1 million federal grant to manufacture large capacitors for use in hybrid and electric vehicles. At the time, Kemet planned to hire 115 over a three-year period. The expansions is about to go online, McAdams said, but Kemet may explore doing that work in Mexico instead.

“We already have huge operations there,” he said.

Haley noted that manufacturers have more unemployment claims.

“My focus is that the Legislature is going to continue with unemployment reforms. I care about creating a strong business environment,” Haley said. “That’s why I’m working on tort reform. That’s why we are working on making sure we have centers and getting work force training. That’s why I care about infrastructure and the ports.”

She said if the Legislature chooses to pursue further unemployment insurance changes, she will not object.

“But as far as I’m concerned, that was an excellent reform last year,” Haley said.


Comments:

Added: 14 Feb 2011

This is a great article. I'm disappointed in Governor Haley for not recognizing the flaws in this approach. Nothing positive can come from this type of reform. Employers who get penalized for laying off bad employees or having to choose between laying off a few employees versus closing down (due to the economy/decrease in revenue) will lay off more people to rid themselves of the excess costs. And don't expect any of them to start hiring anytime soon. What really doesn't make sense is this: If John Doe is a bad employee and gets laid off (or fired) from every job he has ever had, then why do "we" punish the employer who gives John a chance to redeem himself? Employer takes a chance on John, John turns out to be a bad employee, employer fires John and John collects unemployment benefits. Does it really make sense to charge employers for this? And if it does, then why doesn't everyone just pay the same rate and level the playing field? It's not like employers like to lay off employees. Furthermore, employers aren't "using" unemployment benefits. Maybe it's time to make those who use unemployment benefits pay back what they've used after they've found employment? Two things would happen - they would find a job a whole lot quicker, and they would be better employees because they would have a stake in the game. Let's start using common sense. Nothing in life is free. If you need a helping hand, I'm all for providing it. But how about show some character and resolve and re-pay those who have helped you?

Brian


Added: 14 Feb 2011

I AM THE CEO OF A RELATIVELY SMALL DISTRIBUTION COMPANY 32 EMPLOYEES FULL TIME AND PART TIME.IN THE LAST THREE DIFFICULT YEARS WE HAVE HAD ONLY ONE CLAIM AGAINST US. MY EMPLOYMENT TAXES JUST WENT UP 390% ONLY. IT LOOKS LIKE THE STATE GOVERNMEMT IS TRYING TO MAKE UP THE FIRST YEAR WHAT HAS BEEN CHAGED AGAINST MY ACCOUNT IN THE LAST 6 OR SEVEN YEARS. IT IS UNACCEPTABLE.

JEAN-PIERRE CHAMBAS


Added: 15 Feb 2011

I am co-owner of a rapidly growing high tech aerospace manufacturing company with 50 employees operating 24 x 7 and (was) in the process of ramping up for more grown and hiring. Three years ago in the height of the recession we laid off 9 employees who were the least skilled, in order to keep our most advanced employees. Since then we have not only re-hired those 9 positions, but have added almost 20 more new hires (all of which have been at a higher wage than the previous lost jobs). We have also invested several million in new capital equipment (resulting in higher property tax revenue for our state/county). Our unemployment taxes have risen by over $700 additional PER employee. Multiply that by 50 employees + the additional 10-15 more we were planning to hire and that is a formidable impact to our company's profitability. Instead of using these funds for investing in workforce training, capital investment or hiring additional employees, we are now diverting these funds back to the state, who's poor policy making and mismanagement and oversight of the Unemployment Commission was a large part of the root cause. We are seriously reconsidering our hiring plans for 2011 and also more significant 2nd factory expansion in this state, perhaps favoring expansion in other states with a more positive tax policy toward manufacturers. Additionally, what most citizens do not realize is that unemployment policies have perpetuated the problem, through continued debt funded extensions. Employees that have been terminated FOR CAUSE due to well document performance problems, failure to meet drug/alcohol or other HR policies...have successfully received unemployment benefits even when contested. The department almost always favors the terminated employee, even if very strong evidence was provided regarding blatant performance or policy violations. Lastly and most shockingly, is that over the past 6 months as we continue to hire...8 different interview candidates for recent new hire opportunities TURNED DOWN JOBS that we offered them, stating that they would prefer to continue receiving their unemployment benefits and expressing confidence in the knowledge that these benefits would further be extended. These candidates elected this path despite the fact that our company was offering them a job with above $18/hr starting salary, fully paid medical & disability benefits, and a career development path to make well over $25/hr. Most of the reasons given was that "well...my wife works and if I can collect $300-$400/week from unemployment for another year, I can afford not to work". The lack of dignity and work ethic expressed was shocking, especially since all of these candidates were well educated, well spoken, and skilled. These were candidates that could get a job, but were incented to stay at home collecting a handout...because they could. FYI - Phone calls to the unemployment commission were left as messages to express formal complaints for investigative purposes. I have yet to receive a return phone call. I have since gave up trying to get action. Our legislators need to become more grounded with the needs of their constituents - who want to create high paying jobs and invest in business expansion. Perhaps if our legislators took the approach of most business owners during a time of crisis, policy making would not be such an academic exercise. A short list of action items could include: 1) Reduce all top legislator salaries to ZERO. Many business owners do this as the first step. 2) Reduce state employee administrative staff salaries by 15% across the board. Note: Do not impact the employees "adding value". Similar to a manufacturer where a machinist is the one actually making the product, keep the salaries of teachers, fireman, policeman, etc INTACT. Reduce non-value-added / administrative salaries wherever possible. 3) Significantly reduce or eliminate top legislator and administrative healthcare and pension benefits. For example, most small business stop funding or cut out 401k's, increase employee pay share for medical benefits, etc during times of crisis. Once the crisis is over, this is the first area we seek to reinstate. 4) Create a zero balanced budget from the ground up. Funding justification for every line item must be analyzed. Simlar to a manufacturing company, those departments and projects that create revenue and/or position the company for stronger future performance receiving funding priority. "Would like to have" projects get cancelled or moved to next year. If any of our legislators or administrators has the courage and is truly interested in talking to a group of small business owners to improve their understanding of the situation, I'd be delighted to host a meeting. I'll even pay for their travel & food expenses so as to not incur an impact to the taxpayer funded expense account. God Bless our Palmetto State, Jason Premo Co-Owner, ADEX Machining Technologies an Inc 500 Fastest Growing Company for 2010 phone: 864-416-3112

Jason Premo


Added: 15 Feb 2011

I am a small business owner in the construction industry and as far as I can gauge from others in my industry we are all just barely hanging on. If now we have to increase our costs due to governmental policies we will be needing government assistance. I predict more business closures, more employment, more bankrupt individuals, foreclosures, loss of tax revenues, etc. Sounds like a good move?

Tim


Added: 15 Feb 2011

My company was not only hit with a substanial rate increase so were 95% of my client base. These are the very companies that are hirng again. Our legislators must act quickly in repealing this new rate structure. We need to take the time to fully understand the negative impact on jobs and come up with a more sound plan, as things stand now this is a JOB KILLING piece of legislation. I am in agreement the fund must be made solvent and the loan repaid but we can not make up the deficit in one year on the businesses that are most likely to hire. Debbie Varner

Debbie Varner