State announces cut to unemployment insurance tax rates

Maryland businesses will pay less in unemployment insurance taxes next year, state officials said Thursday — a sign, they said, that the economy is improving.

Officials said fewer workers are being laid off and filing unemployment insurance claims, enabling the trust fund used to pay jobless claims to grow to levels that now permit a rate reduction.


The tax rate is reset by law each year, based on the balance in the fund, which topped $983 million at the end of September, up nearly $80 million from the same time the year before.

"It's fortunate for Maryland employers that we've recovered enough to migrate back to lower tables and save them some money in their taxes," said Dennis Morton, acting assistant secretary of the state Department of Labor, Licensing and Regulation's division of unemployment insurance.


Next year will be the second time in three years that employers pay at the lowest rates, which range from 0.3 percent to 7.5 percent. The rates vary depending on whether a business has had workers file claims in recent years, and how many.

About half the state's businesses pay at the bottom of the scale, meaning they can expect to pay about $25.50 per employee next year, labor officials said, down from $51 this year.

Business advocacy groups cheered the cut Thursday, even if the sums involved are small.

"As a small-business owner, any savings is good," said Mike O'Halloran, state director of the National Federation of Independent Businesses-Maryland. "They can put that toward their business, and they get to spend the money how they want."

Gov. Larry Hogan said the cut is in line with his administration's other efforts to improve the state's business climate, such as eliminating fees and streamlining public approval processes.

"We are pleased to be able to let business owners know that the cost of unemployment insurance in Maryland will be reduced," he said. "This is a real win for our business community and the state as a whole."

Employers pay unemployment insurance taxes on the first $8,500 in wages per employee, but the collection restarts if there is turnover.

Depending on an employer's circumstances, the savings can be substantial.


Walter G. Clocker, president of Angel's Food Market in Pasadena, which employs about 40 people, said his unemployment insurance payments have varied by more than $14,000 in years when the tax rates spiked.

"It's definitely meaningful," he said. "If the state can manage this well and keep these rates low, we greatly appreciate it."

Between 2010 and 2012, as businesses closed and the number of people filing unemployment claims grew, insurance tax rates rose to their highest legal levels — from 2.2 percent to 13.5 percent — to keep the trust fund solvent.

The rates have dropped in the years since as the balance rebounded. This year, they ranged from 0.6 percent to 9 percent, the second-lowest level on the scale.

The designers of Maryland's unemployment insurance tax rate system anticipated those rates being typical, said Ronald Adler, who helped establish the system.

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Adler, president and CEO of the human resources management consulting firm Laurdan Associates Inc., serves on the Maryland Chamber of Commerce subcommittee on unemployment insurance. He said he expects the state this year to consider adjustments with the goal of having less frequent rate changes.


"From a business standpoint, we're not complaining," he said. "But it may be as we look forward, we may want to raise the standard ... so we're not bouncing back and forth."

Labor officials said growth in the trust fund this year has been driven by a decline in unemployment benefit payouts from $732 million in fiscal year 2014 to $615 million in fiscal 2015.

There were about 219,500 unemployment insurance claims in the 12 months that ended in June, about 50,0000 fewer than the year before.

Officials could not say how much tax revenue the state will lose because of the difficulty in predicting job growth, changes in taxable wages and how many new employers might emerge. (New employers are assessed the tax at a rate of 2.6 percent.)

The state is not worried about the fluctuating rates, Morton added, just pleased to see rates drop.