The unemployment insurance (UI) issue was brought into sharp focus by Chef Andrew Gruel, owner of several California restaurants including Slapfish and Two Birds Chicken, who recently shared his frustrations in a . Gruel reported a $2,000 discrepancy in payroll taxes during a routine payroll run, attributing the increase to California's efforts to repay federal loans used to sustain its UI program during the COVID-19 pandemic.
"The payroll taxes were $2K higher than calculated," Gruel tweeted. "The federal government wants money back that it lent California for UI that it 'lost.' They are making up for it by having business owners pay. Keep in mind that it was around 10% of our total payroll."
For 2024, the federal unemployment tax rate (FUTA) for California businesses increased further after a hike in 2023. Employers now face an additional $63 per employee, annually, due to a reduced FUTA credit of 4.5%. This marks a significant escalation from the previous year's increase of $21 per employee.
California's UI program, which relies on employer contributions to the UI Trust Fund, has faced systemic challenges for decades. A recent report by the state's Legislative Analyst’s Office (LAO) highlights the severity of the problem. The report projects a $2 billion annual deficit over the next five years and a $20 billion federal loan balance. These persistent deficits, combined with a tax system last updated in 1984, have made the system unsustainable.
One proposed solution is to increase the taxable wage base for UI from $7,000 per employee to $46,800. Supporters argue this change would generate sufficient revenue to stabilize the fund. The LAO report also recommends splitting the cost of repaying federal loans between employers and the state government to reduce the financial strain on businesses.
San Diego's small businesses, particularly in the restaurant industry, are feeling the brunt of these changes. Rising payroll taxes, coupled with inflation and increased labor costs, have tightened already thin margins. Many restaurant owners are struggling to balance these expenses while maintaining competitive pricing and quality service.
"For small restaurants like ours, these additional costs are significant," said a local restaurant owner in San Diego. "We're trying to keep our doors open, but every new tax or expense makes it harder."
The state's Employment Development Department (EDD) acknowledged the challenges outlined in the LAO report. Officials are reviewing potential reforms, including fraud prevention measures and adjustments to the tax structure, to create a more equitable and efficient system.
Until these reforms are enacted, San Diego's and other California businesses must navigate the increased costs while planning for potential future hikes. Employers are encouraged to consult with payroll providers and stay informed about legislative developments that could affect their financial outlook.
As California works to balance its UI debt and economic recovery, the resilience of San Diego's small businesses and restaurants remains critical. Despite these challenges, the local community continues to adapt, innovate, and serve as a cornerstone of the city's vibrant economy.
Originally published on December 14, 2024.Ìý
