The Hawaii State Department of Labor & Industrial Relations (DLIR) announced in December a 26 percent average drop in Unemployment Insurance contribution rates, resulting in employers paying $50 million less in taxes, or $100 less per employee on average for 2016. The annual average per employee has fallen from $910 in 2013 to an estimated $300 in 2016.
“This move comes at a time of continued strength in our state’s economy. It frees up capital that companies can use to improve their businesses, and it’s also a reassuring sign to workers that the reserve has been replenished and will be available to act as a safety net in the event of a future economic downturn,” stated Gov. David Ige.
The state had to borrow $183 million to pay benefits when the Unemployment Compensation Trust Fund went bankrupt in December 2010. However, the fund balance has grown to approximately $460 million. The goal of the unemployment insurance financing structure is to maintain the fund at an adequate reserve level, which is the balance necessary to pay out one year of benefits. The current reserve is at about thirteen months of benefits. The higher fund balance triggered Schedule C for 2016, down from Schedule D in 2015.
The above applies to all Hawaii employers except 501(c)(3) organizations. 501(c)(3)s do not have to pay state unemployment insurance taxes. Many Hawaii nonprofits could save as much as 30 percent more on their unemployment cost by opting out of the unemployment insurance tax system – an advantage provided to them by the IRS. Doing so affords nonprofits unique avenues that allow them to strategically handle unemployment claims administration and unemployment insurance taxes in ways that for-profits can only dream about.
Contact us today for more information concerning your nonprofit unemployment insurance tax advantages.