A typical Connecticut legislative session sees many bills that would make operating a business and creating jobs in the state’s high-cost environment even more difficult. The 2015 session is true to form.
Job creators attending the labor and employment breakout session at Connecticut Business Day 2015 weighed in on several of the most troublesome proposals including those:
- Creating a state-run paid Family and Medical Leave Insurance (FMLI) program (HB 6932)
- Requiring a $15 minimum wage for certain employers (SB 1044 and HB 6791)
- Expanding the nation’s first state paid sick leave law
But on the positive side, they also talked about potential reforms of Connecticut’s costly unemployment compensation system to bring the state more in line with best practices used by many other states.
How Do You Stay in Business?
Robin Imbrogno [pictured above], president and COO of The Human Resource Consulting Group LLC in Seymour, said the paid FMLI proposal forces employees to pay into a system that will allow them up to 12 weeks per year of paid leave.
During the leave, employers would keep paying 100% of the employee’s wages, all nonwage benefits, and have to preserve their job.
The program is mandatory for businesses with two or more employees, significantly expanding it well beyond federal and state FMLA, which apply to organizations with 50 or more employees.
If a company has a very small number of employees, and half of them are on leave at the same time, “How do you stay in business?” asked one employer.
Employees would pay for the program through payroll deductions whether using it or not, making one attendee wonder, “How are we going to attract skilled employees to Connecticut if we tax them to pay for this program”?
Imbrogno also pointed out that while three other states have instituted temporary disability programs, Connecticut is the only state “attempting to do this with no track record of managing [one].”
A fourth state—Washington—passed legislation similar to Connecticut’s but has not implemented it because it will cost $1.5 billion per biennium to administer.
Connecticut’s Labor Department doesn’t have the staff or IT infrastructure to administer the proposed program, said Imbrogno, which means taxpayers would have to pay for the ramp-up.
The paid FMLI proposal is just the kind of legislation that drives existing businesses out of the state and keeps new ones from coming in, said participants.
According to Imbrogno, her company became a multistate enterprise when many of her client businesses moved out of Connecticut for more business-friendly surroundings after the paid sick leave law was enacted.
Into the Abyss
When state Labor Department employees talk to Henry Zaccardi [pictueed above], counsel at Shipman & Goodwin LLC in Hartford, about Connecticut unemployment taxes, they often use the word abyss.
Zaccardi explained that once the great recession hit, Connecticut fell into an abyss, wiping out the $450 million in its Unemployment Compensation Trust Fund and borrowing $1 billion from the federal government to keep paying benefits to unemployment claimants.
Now, to pay off the state’s debt, employers are paying some of the highest unemployment taxes in the nation, including a series of special assessments imposed to repay interest on the federal loan.
Zaccardi cautioned that to keep the trust fund solvent going forward, the state will consider raising the $15,000 taxable wage base. (Employers currently pay quarterly UC taxes on the first $15,000 in wages paid per employee each year.)
If the economy remains stable and system is reformed, Zaccardi said, Connecticut’s federal loan could be paid off in 2017. But if another recession hits, the state could be back in debt by $172 million by 2017, and $1.5 billion by 2022.
Reforming the system to bring Connecticut up to speed with other states’ best practices could help to avoid such a scenario. After all, neighboring states have avoided increasing taxes on employers by making minor benefit reforms.
Among the reforms Zaccardi cited are:
- Raising the minimum earnings to qualify for unemployment benefits from the current $600, the nation’s fourth-lowest earnings requirement. Thirty-two states/territories require employee earnings of between $2,000 and $5,000 to qualify for benefits.
- Requiring claimants to post their resumes online as a condition of continuing to receive benefits after six weeks of unemployment.
- Basing benefits on an employee’s annual salary rather than two highest quarters, to avoid unfairly rewarding seasonal workers.
- Requiring claimants to wait a week before receiving unemployment benefits, as do 41 other states
- Freezing the maximum weekly benefit rate for three years. The maximum rate is allowed to increase by $18,000 every year, but by freezing it for three years, the state Labor Department projects Connecticut employers would save as much as $10 million per year over the next 10 years.
“I understand the need for a safety net like a UC Trust Fund,” said Zaccardi, “but when it goes broke and employers are leaving the state, we need to do a better job of balancing” the methods we use to keep the safety net from breaking.