Employers prepare for cost adjustments

Missouri business owners small and large will see an increase in the cost of doing business in 2014. With the change of the calendar comes a jump in the unemployment insurance they pay the state, and the minimum wage is slated to rise to $7.50 an hour.

Brendan Cossette, director of legislative affairs for the Missouri Chamber of Commerce and Industry, said increases are looming because the state needs to pay off federal money borrowed in 2008 to keep its unemployment insurance fund solvent.

“It’s basically a backwards tax. Instead of allocating a certain surcharge to their unemployment insurance, it is reversed in that everybody is granted a (5.4) percent tax credit that is reduced by a certain amount if there is an outstanding balance owed to the federal government,” Cossette said.

According to the Missouri Department of Labor, in addition to state unemployment taxes, businesses in the state pay a 6 percent federal tax on the first $7,000 of wages for each employee under the Federal Unemployment Tax Act. However, the federal government offers credits on all but 0.6 percent for companies in states that don’t have an outstanding balance for two years or more. In the third year of an outstanding balance, and in each year that follows, 0.3 percent of the credit is removed.

Next year, will be the fourth year in a row that Missouri hasn’t made good on its federal debt, which means Show-Me State businesses are paying a 1.8 percent tax on their workers’ earnings instead of 0.6 percent.

The net impact for companies is considerable. The loss of a tax break will take Missouri’s unemployment insurance rate to $63 per employee from $42 per employee, if the full credit was intact, according to the chamber.

Cossette said states often lean on federal funding during economic downturns. However, most states have addressed their debts either through bonding or adjustments to benefits. Currently, Missouri is one of 14 states facing a tax credit reduction in 2014.

The increased obligation on businesses comes after legislators narrowly failed in September to override a veto of House Bill 611, which would have modified benefits by making certain terminated employees ineligible to collect unemployment. The Missouri chamber supported the override, but it came two votes short.

Cossette said the fund, which currently has a shortfall of $320 million, is something of a moving target.

“It is not like a car loan, where that would be separate from your other finances. It is all pooled together,” Cossette said, adding as more people go back to work, more pay into the fund.

The problem in Missouri and the other states is that not paying off the federal balance for two years in a row triggers the reduction in tax credits. “Basically, every employer is responsible for the balance. The state is just a middleman,” he said.

Mike Carroll, controller for Andy’s Frozen Custard, said the retailer wouldn’t necessarily be impacted by an increase in minimum wage, but unemployment insurance increases are a cause of concern.

He said the company paid $3 million in payroll to its 250 employees in the past year.

“We try to track legislative changes, but this was something we had not put pencil to paper on yet,” Carroll said.

Ann Puddister, general manager of human resources for Jack Henry & Associates Inc. (NASDAQ: JKHY), said the unemployment insurance situation isn’t ideal, but she didn’t expect it to make waves throughout the national banking software firm. In the Springfield area, Jack Henry employs roughly 1,800.

“While we don’t like to see an increase, it’s approximately an additional $40,000 a year, which in the scheme of things is not that significant,” Puddister said via email. “It is what it is. We aren’t so concerned with it, but if we were, there isn’t anything we can do about it.”

Cossette said the proposed unemployment bill would have changed the definition of “misconduct” under the law.

“We hear all these egregious stories about people who didn’t pass a drug test and got fired, but could still get unemployment benefits,” he said. “If we tighten up the definition of misconduct, you’d have less of those people still getting paid unemployment.”

Next year, Cossette expects legislators to file a bill aimed at restructuring the unemployment insurance fund, and that could take various forms and include a bonding measure.

At Andy’s, Carroll said the company pays a base wage of $8.50 an hour for starting workers. He said the bump in the minimum wage from $7.35 per hour is not enough to trigger an immediate response in the company’s base pay.

“I think we’ll stick with the status quo for now,” he said, adding the company hires above the legal minimum for an edge in attracting a quality workforce.

However, Carroll said if national efforts to significantly hike the minimum wage to $9 or $10 an hour were successful, Andy’s might need to review its policy.

Dan Grider, manager of Harter House on South Eastgate Avenue, said the grocery store this month bumped up its hourly base pay by 25 cents to coincide with the minimum wage increase.

“When we hire, we put everyone on a 30-day probationary period just to see how they do. After 30 days, we sit down and do a review and discuss a higher wage at that point,” Grider said. “With the increase in the minimum wage, I didn’t want to start them off at $7.50.

“We are just trying to stay ahead of the curve a little bit.”