RICHMOND, VA (WWBT) - High unemployment is draining the state unemployment insurance fund. Now businesses have to pay higher unemployment tax. That's leading some companies to limit hiring and cut expenses.
Unemployment tax is what companies have to pay for each employee they have. The money is used to pay for unemployment benefits for workers who lose their jobs. But some businesses say the tax increase this year, along with other higher taxes, is preventing them from hiring more workers.
At Puritan Cleaners, paying 200+ workers adds up to nearly half the company's costs. President Gary Glover says having to pay more unemployment tax on each worker has forced him to cut some positions.
"We have a lot of places where a customer service person might be a half a person and we have to start eliminating jobs like that, so service goes down," said Glover.
The unemployment insurance fund was drained last year from $547-million down to a $178-million deficit. Like many states, Virginia borrowed federal money to help pay benefits. The drained fund automatically triggers unemployment tax increases. The Fredericksburg Free-Lance Start reports taxes will go from an average of $95 per employee a year last year to an average $171 per employee this year.
"It's significant. Every little bit hurts and when we see a jump like that we have to make arrangements for it," Glover said.
"It's just one more expense that the business like ours has to carry. There's the unemployment tax, there's the dealer discount, there's accelerated sales tax, business license fees, all those things go into the cost of the business," said James Hatcher with Pleasant's Hardware.
Hatcher is not cutting staff, but has less to put back into the business.
"We typically would cut back on goods and service that we might otherwise buy. We might not have the store repainted. We might now re-stripe the parking lot. We might not lease another van," he said.
Virginia is not alone. Companies in many states face higher unemployment taxes this year.
"If you want us to hire people, you need to allow us to have the resources to do that. We can't hire people if we have to keep spending in fees and stuff," said Hatcher.
The state unemployment tax is expected to go up again to an average $234 per employee next year and $263 per employee in 2012. But the tax is expected to go down after unemployment goes down.