Future of unemployment insurance

Multiple readers have asked about unemployment insurance and how it is going to fare after the pandemic. This will give you an idea of how the system works.

State unemployment insurance (SUI) is largely funded by employers. Most employers are charged tax that depends on two things: the overall health of the fund into which SUI tax is collected, and the claims history of the employer. So, an employer with a long history of chargeable claims, for example, will pay more than others. Also, if there is lots of money built up in the fund then the tax rate goes down for everyone.

The health of the fund determines the proper tax rate schedule. The schedules are named after a letter of the alphabet, with A the least costly schedule and H the most expensive. The fund health is measured at the end of the year, and that measurement is used to set the rate for the following year. Here is a chart of the SUI rate schedule for the past 20 years:

Source: State Department of Labor and Industrial Relations reports compiled by Tax Foundation of Hawai‘i.

Although the great recession of 2008 and related events caused the fund to run out of money and we needed to borrow around $180 million from Uncle Sam, employers were not subjected to the dreaded Schedule H because our lawmakers passed special legislation to control the SUI rates and override the normal formulas for the years 2010 through 2012.

What can we expect once the year ends? Lately, the volume of unemployment claims has been so great that the authorities set up a processing center at the Hawai‘i Convention Center. Our fund started off the year at nearly $600 million but has been draining rapidly. A news release dated July 2 said the DLIR already has paid out $1.85 billion in benefits.

Fortunately, federally-funded benefits such as the extra $600 per week paid to those on unemployment are not charged to employers because that money does not come from our fund. The state’s budget bill, Senate Bill 126, section 38, appropriates federal CARES act money to fund an additional weekly unemployment benefit of $100 per week once the federal $600 per week runs out. Those benefits will not affect the SUI fund either and should not count against employers for the same reason.

Nevertheless, with an unemployment rate peaking at 23.8% in April, a tremendous strain has been placed on the fund.

There will be a spike in SUI rates next year unless our government does something to prevent it, as it did for the years 2010 to 2012. Is our government simply going to wait around for the automatic increases to take effect from the beginning of 2021? Some businesses might not survive another hit at that time. Perhaps some thought should be given sooner rather than later to the impact of elevated SUI rates.


Tom Yamachika is president of the Tax Foundation of Hawai‘i.

  1. mina July 12, 2020 12:55 pm Reply

    More than likely, many of you, especially hotel, tourism, and restaurant workers, are not going to get your jobs back. If they actually do reopen Hawaii to trans Pacific tourism, and we start seeing how many local people this is going to kill, it will end tourism for good in Hawaii. This pandemic has changed our culture and lifestyles forever. Unemployment compensation can only last for so long, then you’ll be selling everything you own to keep food on the table, including those $75k lifted custom pickups parked in your driveway. Think this over. How long can you live on Kauai without a job? Maybe it’s a good time to start planning for a move to the mainland. Let the wealthy by your houses. Move to the mainland with the profit, and try your luck there. You ain’t gonna make it in these islands living out of your Chevy Silverado on da beach.

  2. Shelly July 14, 2020 7:19 am Reply

    Big question —how long will unemployment last?

  3. Utubangbang July 16, 2020 8:01 am Reply

    Nah….we’ll survive…just like Robin hood
    take from the rich and give to the poor

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