WINSTON COUNTY - A year of record-setting unemployment in Alabama due to the COVID-19 pandemic will soon mean a dramatic increase in unemployment tax on the backs of businesses already struggling.
The equation, leading to what is being forecast as a 70-90 percent increase in unemployment tax on employers, can be traced back to unemployment compensation that dramatically increased in the state last year. In 2019, Alabama paid $144 million in unemployment compensation, compared to a whopping $813 million in 2020 due to the COVID-19 pandemic and the ensuing layoffs and business closures, according to figures listed by the Alabama Department of Revenue.
The federal Coronavirus Aid Relief and Economic Security Act, more commonly known as the CARES Act, authorized $150 billion through the Coronavirus Relief Fund for state and local governments, including approximately $1.8 billion for Alabama. The funds were to be earmarked for any necessary expenditures incurred due to the public health emergency regarding the COVID-19 virus. In other words, these funds were to be set aside for the purpose to prevent, prepare for and respond to COVID-19 concerns only. No other purpose was to be authorized.
The state was able to allocate $385 million from CARES Act funding to the Unemployment Insurance Trust Fund, which helped alleviate some of the impact, according to the Alabama Department of Labor. This $385 million in CARES Act funding offset some of the $813 million paid in unemployment compensation for 2020, officials said.
“The employers in the State of Alabama are going to be asked to make up the difference,” stressed Mike Evans, president of the Haleyville Area Chamber of Commerce.
The Alabama Department of Labor anticipates that employers will see an increase of at least 77 percent to the unemployment tax, which will be used to replenish the Unemployment Insurance Trust Fund that businesses pay into in order to fund unemployment claims. This percentage is lower than the previously reported 92 percent increase in the unemployment tax.
Nearly 892,500 unemployment claims were filed from the start of the pandemic in March 2020, to the end of that calendar year, reports indicated. Businesses will, therefore, see an increase of $40 per employee per calendar year, with this new rate being effective throughout the year, and the first payment for the quarterly tax due in April.
“Businesses are going to be impacted more with this unemployment tax than the average citizen, because this is a tax that is not shared with employees,” Evans added. “Unemployment taxes are paid 100 percent by the business owner.”
This tax, Evans continued, is going to have to be absorbed without being shared among an employer and his or her employees.
“It will be shared basically with all businesses in Alabama,” Evans pointed out.
This tax increase is a direct result of the COVID-19 pandemic, officials continued.
“Last year, there seemed to be no consequences to these bail outs,” Evans said. “There seemed to be no consequences to the money the government was making available to citizens.
“I am not saying that money was not needed,” he noted. “What’s happening now, it’s getting down to somebody is going to have to pay the bill.”
This higher rate in unemployment tax will mean businesses already struggling due to the pandemic will have another headache--this one an increase of overhead costs, officials said.
“I am afraid what this will result in is additional costs being passed on to the consumer,” Evans said. “...There is no other way to recoup this additional cost.
“This is going to be a tremendous blow, in my opinion, to the budgets of our local municipalities and counties, as well,” said Evans.
Winston County Commission Chairman Roger Hayes noted this dramatic increase in unemployment taxes will affect the citizens.
“I am concerned about that,” Hayes said. “You know and I know it is going to be passed on to the consumer. That is the only way you can get around it.
“Just like minimum wage, if minimum wage goes up, it will make that hamburger go to $15,” Hayes added. “It always hurts.
“If it goes up and your overhead is so high, it means you may lay off some people to meet your obligations,” Hayes pointed out.
“It means there are going to be some tough choices made,” Evans added. “That’s obviously one of those choices.”
As the owner of the Razor’s Edge in Haleyville, Hayes knows about overhead costs.
“There’s going to be a day of reckoning, and it’s going to be a terrible wreck,” Hayes stated. “Indirectly, it doesn’t affect me at the county level, but directly it concerns me because being a small business owner, there will have to be some tough choices.”
Smaller businesses such as the Razor’s Edge were affected more than some other businesses earlier during the pandemic, when Governor Kay Ivey in 2020 ordered some businesses to be closed for a time due to the pandemic.
“You struggled all year with the limitations put on you,” Hayes said. He stressed the business cleaned, disinfected and worked to make things as safe as possible for their customers.
“I have an older clientele. So does every small business in the State of Alabama,” Hayes continued. “The older clientele is subject to have worse problems, and they are scared to death...These people are not going to get out, and you can’t blame them for not getting out.
“In return, the small businesses suffer,because half of my customers are the older clientele,” he said.
Toby Sherrill, who owns the Dixie Den and Dixie Theater on Main Street in downtown Haleyville, has suffered a loss from the pandemic.
“The state shut me down for three months,” Sherrill said about the theater. “Then all the movie companies quit putting out movies, and I end up being down eight months out of 12 in 2020, and they wonder why I ask for help. I had an 86 percent loss last year.
“As bad a year as it has been, my land taxes went up $600 this year,” Sherrill pointed out. I can understand someone is trying to make up the shortfall. I get that, but on businesses?
“You would think they would take it out on something else and not businesses that already have been hit,” he pointed out. “I can’t see making businesses pay it. I can see making everybody pay it, not just tack it on business.”
This will mean businesses will have to increase their costs to the consumer in order to make up the difference on their end, business owners said.
State Representative Tim Wadsworth explained the state’s decision this year to transfer the CARES Act funding to the unemployment account has benefits.
“If anybody says that it actually causes (the unemployment tax) to go up, they are mischaracterizing it because it actually has the affect of reducing the amount that businesses would have to pay because there’s more money in that fund,” Wadsworth stated. “It produces the amount of tax that businesses would have to pay because it is putting more money into that fund. It also enables individuals who have lost their job because of COVID-19 to receive more unemployment funds.”
Wadsworth said the Alabama House passed HB 170, which means all federal funds that have resulted from the CARES Act, including any payments made to small businesses or to individuals, would not be taxable for state income tax purposes.
“I don’t think the transferring of funds from the CARES Act to the Department of Labor would do anything but help reduce the amount businesses would have to pay for unemployment insurance,” Wadsworth stated.
State Representative Tracy Estes noted he was not in favor of the reallocation of CARES Act funds toward the unemployment fund. That decision was made strictly by the governor’s office and did not involve the state legislature, he said.
“I believe it is important we take all feasible steps to assist small business owners,” Representative Estes said. “These are the ones who employ our residents and generate tax revenue for our communities.”
State Representative Proncey Robertson stressed that closing down businesses due to an aggressive tax increase would be detrimental to state businesses still weathering the COVID storm.
Alabama businesses, Robertson added, pay a tax to support the Unemployment Insurance Trust Fund.
“The depletion of the fund would trigger the tax increase,” he stated. “Replenishing some of the money will offset part of the tax increase.”
Double Springs Mayor Elmo Robinson stressed that it was not fair to burden businesses with bearing the brunt of the unemployment tax increase.
“Unemployment comes out of their bottom line,” Robinson said. “The employee doesn’t pay into that. It’s all employers, so it’s going to affect their net profit.
“They are already set back by having to be closed. The state jumped into it without thinking about what is going to happen one year, two years down the road,” Robinson pointed out.
“(The state) ought to take the funds and make up the difference in the unemployment fund, whatever it needs.
“Instead of putting it back on the small business people, I think (the state) ought to be the ones who are having to recoup this money themselves,” Robinson said.
See complete story in the Northwest Alabamian.