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.
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Travis Raml, CPA