As many employers look to closeout and forget 2020, Maryland employers face yet another challenge as a sizeable hike in unemployment tax rates is coming in 2021.
It's important to note that Governor Hogan signed an executive order (copy below, FAQs) that excludes 2020 employer data from the formula used to determine the 2021 unemployment rate. If the Governor had not done this, all employers would have had an even higher tax rate for 2021.
For employers with zero claims over the prior three (3) years (the measurement period will remain 2017, 2018, and 2019, for 2021) the per annual amount due per employee will increase from $25.50 to $187 per employee for 2021, which is almost 7.5 times the 2020 experience rate.
While obviously not good news, at first glace it might not sound all that punitive at first glance. However, imagine you have 50 employees, all of which require an unemployment contribution. That comes out to an extra $8,075 that employers will have to pay in for 2021. In higher turnover businesses such as retail and hospitality, it's very possible to have on average 10 to 15 employees per year, but because of attrition this equals 50 or more total employees per year, all of which require their own unemployment contribution.
While unemployment rates will reduce over time as we saw a similar situation occur during and after the financial crisis (great recession). Unfortunately, in the short term, this is one more hit businesses are going to have to contend with.
Consider these tips to help offset these costs:
1) Have a plan for 2021, as no plan almost always means no success, and those who are successful are just incredibly lucky.
2) Investigate ways to streamline operations & improve efficiency in the short and medium term. No is not the time for long term decision making if possible, as there is still much uncertainty.
3) Review and make cash savings measures (both for the business, and personally), and do the easiest ones immediately. This doesn't mean slash essential services, but it means giving up the luxuries.
Contact us if you need help with these or similar small business savings strategies.
It's a fallacy to think that you achieve absolute security and complete peace of mind, especially with your finances. You can prepare and save huge sums of money only to find out it was enough to cover situation X, but situation Y, the one you hadn't considered, not even close. If the pandemic taught us anything, it's that no industry, business, or our economy is immune from significant disruption given the right circumstances.
That said, there are steps we can take to better address the inherent risk we face in and our lives and especially with our finances, The below list comes from an article by Michael Kay and while I've used these points when providing professional advice, the way they're stated here is unlike how they're normally presented by an accountant or financial planner. I especially appreciate items #2, #4.and #6 as they don't require a degree in accounting or finance to see their importance.
12 Crucial Actions to Protect Your Business
How to Move On After Losing a Big Client. The list below comes from Young Entrepreneur Council (YEC) and provides a good reference point in establishing an action plan.
1. Get a Guarantor for the Contracts
2. Ask for Payment Upfront
3. Get a Lawyer
4. Begin Negotiating ASAP
5. Ensure Constant Communication
6. Get a Realistic Projection
7. Offer a Reduced Payment
8. Auto-Charge Credit Cards
9. Restructure Your Payment Terms
10. Get Trade Credit Insurance
11. Move On and Find New Clients
12. Diversify Your Client Base
#business #businessowner #smallbusiness #clients #COVID-19 #Coronavirus #negotiations #riskmanagement #lossprevention #creditinsurance #tradecredit #insurance #negotiations #restructure #restructuring
How The Shaw Festival used some well planned Risk Management and saved 500 performing arts jobs during the Pandemic
The stomach bug and understanding of communicable disease helped save the Shaw Festival during the Pandemic | https://ramlcpa.link/cmzz
How the Shaw Festival kept 500 people employed during COVID — by taking out #pandemic #insurance three years ago.
About three-and-a-half years ago, #CEO of the #ShawFestival in Niagara-on-the-Lake, decided to undertake some risk analysis alongside his #CFO. He looked at potential problem areas .... and came to a shrewd conclusion: .... The festival should take out an #insurancepolicy against the threat of a #pandemic.
The policy covered the interruption of planned performances by communicable disease. As a consequence of that remarkable #foresight, the Shaw Festival has been able to do the basically impossible ....... thanks to the coverage, Shaw’s are among the only #actors, #musicians, and #theatre workers in the #world who still have #jobs.
Jennings says, reflecting on this extraordinary stroke of luck. “It wasn’t actually genius. It wasn’t about this pandemic at all — it was about #communicable #disease.” ..... Shaw employs a rotating repertory ensemble; if one of his actors got the #flu, ten of them could, and that might stall a show. “We took it out for the whole season, thinking that if six actors got ill and we had to shut down for two weeks, we might lose two million bucks,”
#ramlcpa #riskmanagement #businessplanning
While some carriers are beginning to offer pandemic insurance, questions and risk remain.
Welcome to the Growth, Profits, and Wealth Blog where we'll be featuring this new and yet to named series where we’ll look at the accounting, tax, advisory and business angle of topics such as Risk Management, Restructuring, Distressed Assets, Automation, Best Practices, and Growth Initiatives. This is our introductory post and cast which is about was delayed close to a month because of the never-ending tax season.
The idea is to touch on a range of matters affected by the Pandemic for just about a minute or two, to get you informed, help you be better prepared as a practitioner or business owner, give you some reference material, and get you back to work.
First topic is Pandemic Insurance of course, and we'll be coming back to this topic in the weeks and months ahead.
The insurance Industry is moving pretty quickly to provide some measure of Pandemic Insurance, now that we're several months into the pandemic, and also because this is what Fintechs, InsurTechs, and specialty insurers are really designed for. What's interesting is seeing the formation of these insurers and the ownership mix of their backers. May are tied to large insurance companies, private equity, and wealthy individual investors. While these are newer insurers or startups a number of those research have very experienced insurance professionals at every level.
These setups makes a lot of sense as the close ties to large existing insurers gives them access to ReInsurance so the risk can be diversified by other insurers who want to take on some of the risk for a portion of the premiums. On the operations and startup cost side, the ties so private equity and wealthy investors gives them access to capital to create, operate, and administer these policies.
The problems, well where to begin:
First, while this sounds all well and good, these initial insurers and policies are here to make money not do the world or economy a favor. Thus, these policies are going to be some of the most expensive insurance available. Not only is it a hot topic with limited data, but the spike and second closure in some areas makes this about the worst possible time to buy and likely the policy would not even pay out immediately.
In the U.S. News Article "Pandemic-Proofing..." it mentioned policies that offer up to $1MM in coverage, however that coverage comes with eye popping premiums of $80,000 - $100,000 annually. Part of the problem here is with very limited data to model (if even possible) most policies at the moment are using all worst case scenarios to make sure if they do find a buyer they're likely to come out break even or better in the short and medium term.
Perhaps this is why back in May Warren Buffet said he would interested in offering in offering Pandemic coverage, but only at the right price, which is a great leading to something that is overlooked with insurance coverage, which is as one's risk protection is another’s investment.
In the July 23rd Insurance Journal article the insurer One80 was able to write polices up to $100MM , I don't see this as a realistic offering by traditional insurance companies or a solution for small businesses. It's much more likely that these policies fill a niche that needs can actually afford them, perhaps Hollywood, perhaps live entertainment, but will almost certainly have lo effect on the economy. Instead insurers and businesses appear much more likely to wait to see if the Federal Government provides a backstop for insurers or something similar.
Another major issue I see is, if the language and terms are not broad enough these policies could very easily still leaving gaps in coverage, setting things up for this same type of problem in just some other form.
Lastly, and most importantly in my opinion, while these policies might be associated or have some backing by major insurance brokers and carriers, it's very important for the businesses, advisors, & agents to know who is actually underwriting and backing the policy.
Insurers and policies have ratings for a reason but the fragmented structure of these new insurance makes them susceptible for abuse. A little bit of clever or confusing marketing slight of hand is to and the ability to use a large carriers name and ratings to:
I'm not accusing anyone, but the opportunity for abuse and risk is real, and insurance that is at high risk for nonpayment might very well be worthless in the end.
We'll call that a wrap for now and let you all get back to work!
That's enough for now, thanks for listening and I'll be back with one or two more casts by this weekend, and then back next week as we'll being our normal schedule.
#ramlcpa #riskmanagement #insurance #restructuring #pandemic #covid19 #covid_19 #business #smallbusinesses #businessinterruptioninsurance #coronavirus
Travis Raml, CPA