State workers' comp tax abated in 2005

Gary Estenson, acting director of the Division of Workers Compensation, said the tax is used to fund the operations of his division and the agencies that it supports.

“It’s a tax on the premiums an employer pays to insurance companies for their workers’ compensation policies, or in the event that the employer is self-insured, it’s a tax on what they would have paid had they had an insurance policy,” Estenson said. “Each year, it’s simply a percentage charged against the premium, and this abatement makes next year’s rate 0 percent.”

Business owners shouldn’t be surprised if they don’t see the abatement in next year’s statements, though. Estenson said that while the rate is set for the 2005 calendar year, payments aren’t collected until 2006.

“What we’re required to do by statute is estimate a fund balance on December 31 of the current year, and, in conjunction with that, we look at expenditures not for the current year, but for the previous year,” he said. “When we set the rate for 2005, we’re looking at the fund balance in essence that’s available on the first of January 2005, and then we go back to the entire calendar year of 2003 and look at those expenditures, and we calculate what we’ll need based on 110 percent of that. That factors in a cost of living increase in durable goods or services.”

The Division of Workers Compensation uses those totals to calculate how much money will be needed in the fund to run the division for the next year. The state has determined that there is enough money in the fund to facilitate the tax abatement.

The abatement certainly is welcome news to business owners. Rita Needham, executive director of the Southwest Area Manufacturers Association, said workers’ compensation costs have been a struggle for years.

“One of the key issues we’re focusing on is reduction in workers’ compensation charges,” Needham said. “We have a committee that meets monthly, collecting data from our members on the impact of workers’ comp to each company. We’re also looking for companies that have been able to reduce costs through internal changes, and then we’re also going to be making some specific recommendations to our legislators for things that we’d like to see them do to revise and reform the workers’ compensation laws.”

Needham said the abatement is a good start.

“This is certainly good news for all manufacturers, that there is going to be a downward trending, at least, in this administrative tax,” she added. “I don’t think it’s necessarily going to be a large amount for each employer, but it is a positive move.”

In the same announcement, Holden said that the tax surcharge used to fund benefits from the Second Injury Fund will drop to 3.5 percent for calendar year 2005. That decrease will be seen by business owners immediately, however, as surcharge rates are applied to the current year’s payments.

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