South Dakota legislators are poised to consider a proposal that would increase taxes on employers to cover unemployment program administrative costs, while simultaneously reducing taxes allocated to the program's payouts. This plan has raised concerns about an unequal burden on businesses, prompting debate among stakeholders.
The proposed changes, endorsed by the state's Reemployment Assistance Advisory Council, aim to address a projected shortfall in the administration fund. State Labor and Regulation Secretary Marcia Hultman says increased state employee salaries and general inflation are driving the need for this increase.
Currently, employers contribute to both the trust fund for unemployment payouts and a separate fund for administrative expenses and the Future Fund, used by the governor for economic development. The proposal would triple the portion of taxes dedicated to administrative fees, increasing the current $3 per employee annual fee by $9. This would generate an additional $3 million.
To offset this increase, the plan also seeks a $3 million reduction in taxes allocated to the unemployment trust fund. While Hultman assures the department projects a healthy balance in the trust fund, some business leaders raise concerns about the fairness of this shift.
Nathan Sanderson, executive director of the South Dakota Retailers Association, notes that some businesses currently exempt from trust fund payments would face an increase in administrative fees. Conversely, some that do contribute could see a reduction. New employers who are currently exempt from the admin fee will lose their exemption.
The wage base, the first $15,000 of an employee's salary, is also a greater share of payroll for small retailers, raising concern over disproportionate effects on these businesses, according to David Owen, president of the South Dakota Chamber of Commerce & Industry.
Owen suggests alternative funding for administrative expenses from the state's general fund, calling it a more stable source. Meanwhile, Sanderson plans to explore other options that may or may not complement the current proposal.
Furthermore, the Future Fund, which receives some of the employer taxes, has faced scrutiny over legislative oversight. Legislative Director for the South Dakota Society for Human Resource Management State Council, Julie Johnson, hopes these administrative fee increases won’t be “tangled with Future Fund issues.”
Secretary Hultman insists the proposed increase is critical to maintain federal compliance and avoid more significant costs to businesses. She notes that failing to comply could result in a tenfold increase in federal unemployment taxes for employers, from $42 to $420 per employee. Hultman said the alternative is a far greater burden on the employers than the proposed $3 million increase.
