
Unemployment tax or $20000 reasons not to hire someone - georgecmu
http://boss.blogs.nytimes.com/2010/02/03/20000-reasons-not-to-hire-someone/?em
======
grellas
As a U.S. startup or small business, when you hire your first employee, among
other things: (1) you start having to pay employer-related payroll taxes to
federal, state and possibly local governments; (2) you need to hire a payroll
service to handle the myriad reports to be filed with the taxing authorities;
(3) you can get dinged for unemployment insurance claims (the point of this
piece); (4) you need to take out a workers' comp insurance policy; (5) you are
at risk for claims of wrongful discharge; (6) ditto for claims of sexual
harassment; (7) ditto for claims of illegal discrimination; (8) you can face
waiting-time penalties if you are slow to meet payroll; (9) you can face the
so-called 100% penalty if you fail to remit withheld payroll taxes to the
government; (10) you must pay at least a minimum wage for services rendered;
(11) you must pay overtime for work in excess of 8 hours per day or 40 hours
per week; (12) you must post some bureaucratic notices of workplace rights
about your premises; (13) you may have to fund your employee's retirement
along with your own; (14) you may have to pay for your employee's rehab if it
is deemed a disability; (15) you can be vicariously liable for the acts of
your employee that damage others (e.g., if he runs someone over while driving
on company business); and (16) add here any of many other possible oddball
consequences, such as possibly increasing your business license tax, requiring
you to register as a foreign corporation (if you are such) in a state other
than your state of domicile, etc.

No doubt you can others. While there may good and valid reasons for each of
these requirements under law, is it a wonder (when you consider their
cumulative impact) that startups will typically have x reasons of their own
"not to hire," at least early in the company's history?

~~~
tptacek
These reasons pretty much all pale compared to "will I be able to make
payroll?", though.

------
patio11
This is another example of perverse, unintended consequences of "pro-worker"
initiatives biting their intended beneficiaries in the hindquarters. Take a
look at France for the endgame to that: between generous benefits and legally
guaranteed protection from firing that makes Japanese salaryman positions look
unstable, the economy is structurally incapable of employing a huge percentage
of the work force. The young and immigrants, who are the worst affected by
this (not surprising: the lowest skilled/lowest educated/poorest always catch
the worst of every systemic economic issue), have little to do but sit on the
dole or riot, and few prospects for ever doing anything else.

My impression is that similar issues cause the massive underemployment of the
non-salaryman strata of Japanese twenty-somethings. Many of the freeters
(people who bounce from part-time job to part-time job) are cut out for entry
level work, but hiring someone is a lot like marrying them, so if you don't
have the appropriate credential and a resume which looks like exactly what the
company wants, they generally pass.

~~~
irq11
On the other hand, the Danes have a system where the workforce is extremely
mobile, precisely because every worker is guaranteed up to four years of
unemployment benefits. Employers are under no obligation to retain employees,
because there's a great safety net.

If we're going to talk about unintended consequences, we need to consider all
sides: what is the unintended consequence of a system that provides no
assurances to workers during economic downturns? I suspect the downside is
quite harsh.

~~~
patio11
You have a curious definition of "all sides" in which the solution space
appears to be "Impose European-style levels of benefits" XOR "Unemployed
people starve in the snow." I am missing anybody here seriously proposing the
second option.

I suspect the downside to having employment-at-will, very modest unemployment
benefits, and a liquid labor market exists. I also suspect that it can be
measured in terms of objectively verifiable criteria, and compared with the
alternatives. For example, I suspect that I can look in a US newspaper for a
count of the number of cars burned last night by immigrants rioting over lack
of economic opportunity. It will take me a whole lot of searching, because few
newspapers publish articles titled "BREAKING! No riot today, either!"

Then I could look at the same number in a French newspaper. (100 a day on
quiet days, spiking to over a thousand on New Years or during periods of mass
unrest. You might think I'm exaggerating.
[http://www.time.com/time/world/article/0,8599,1869392,00.htm...](http://www.time.com/time/world/article/0,8599,1869392,00.html)
)

Alternatively, if counting riots seems a little messy, I could look at
unemployment statistics for those under twenty five. In the United States, for
youths at large, it is about 11~12% right now. In France, it is over 20 --
down a bit from a few years ago when it hit 25%. For socially disadvantaged
groups in America, for example black males without a high school degree, it is
about 48%. For similarly situated folks in France (for example, uneducated
immigrants), unemployment is close to total.]

I can go on if you want me to.

~~~
bballant
You have valid points, but you also must consider how different France is from
the U.S. When their unions strike over compensation, for example, they close
down roads and burn things. Our unions strike by marching in circles with
signs. Most of the immigrants you speak of live in the equivalent to housing
projects. America has housing projects, but much, much fewer. It's something
the French have embraced, to the detriment of their society, because it keeps
their immigrant population from integrating. America prides itself on it's
diversity and France prides itself on it's "Frenchness." I think you need to
consider all of these things when talking about the reasons the young,
unemployed French riot.

One more thing. I don't know about the ethnic or age breakdown, but right now
French and American unemployment percentages are same. The difference is the
French unemployed have healthcare and other social programs, so they're better
off, in many instances, than Americans.

~~~
gaius
Well, yes and no. The farmers will do that, year. Metro workers often "strike"
by running a normal service but refusing to collect fares. That keeps the
public on-side.

A friend of mine was at the last Santacon in Paris, they were mistaken for
striking workers...

Incidentally, the banlieus of Paris are worse than "the ghetto" of any
American city. Except maybe Detroit.

------
brc
This covers one big point that a lot of 'workplace rule making' types never
quite understand. Most policies designed to protect people from losing their
jobs actually increase either the chance they will lose their job, or their
chance of getting another job. If there are penalties for firing an employee,
with an associated 'trial period', then the employee stands a greater chance
of getting fired before that period is up, even if there was a chance that any
issues could have been worked out.

If an employer knows they may lose money from claims of unfair firing, then
they will resist hiring employees until they have sufficient funds to cover
the cost of losing someone.

Anecdote in point : a member of my family runs a business. A new hire didn't
work out, and after counselling them several times, they decided the person
had to go. They waited until after Christmas, fired the employee, who said
that they understood the reasons. The former employee found representation,
came back and successfully won compensation for an unfair dismissal. The
reason was that some paperwork had not been completed correctly during the
firing process. The resulting legal costs and compensation meant that the
position will remain unfilled for several months until the balance sheet
position is restored.

It's the same law of unintended consequences that means rent controlled
apartments actually decrease housing affordability in cities (apart from the
lucky few). Employment policies like this decrease employment (apart from the
lucky few). In both cases the results are the direct opposite for what they
are intended.

In terms of a social policy : governments should cover minimum wages, working
conditions and other safety issues. Compensation for unfair dismissal should
be capped regardless of salary and paid out of a central fund taken from
company income taxes.

That might be tough but that is life.

~~~
smanek
I have trouble believing your story (assuming it takes place in the states
...) - do you have any more details?

It's (thankfully) really hard to win an unfair dismissal suit since we're all
'at will' employees by default. You can fire someone because you don't like
their shoes, don't like that they smoke, or even no reason at all (the handful
of exceptions are 'protected categories', like race/religion).

~~~
brc
No, it is not in the USA. I can't post any more details because I doubt the
particular business would appreciate it being discussed online. However, I can
assure you that it is very much true, right down to the employee being fired
after the christmas break. The workplace in question closes down for two weeks
after Christmas and the employee was kept on full pay, and dismissed upon
their return to work. This was because nobody wants to fire someone just
before Christmas, when their chances of getting a new job are slim.

In this country, you can't fire an employee for any reason other than non-
performance of written job duties, and only after three written warnings, and
a whole pile of other paperwork. It's easy to get this wrong, and then open
yourself up to unfair dismissal actions. The union representatives actively
look for these types of cases to prosecute.

~~~
aaronblohowiak
"In this country, you can't fire an employee for any reason other than non-
performance of written job duties, and only after three written warnings, and
a whole pile of other paperwork. It's easy to get this wrong, and then open
yourself up to unfair dismissal actions. The union representatives actively
look for these types of cases to prosecute."

I'm pretty sure that this varies by state.

------
donw
Maybe I'm just inexperienced, but can't you get around this with contract-to-
hire? E.g., bring your prospective salesguy in for a 90-day contract, and if
they cut the condiment of choice, keep them?

~~~
shrike
A contractor is a very different thing than an employee. In most circumstances
employees and contractors are not interchangeable [1].

Companies that hire Permatemps [2] can get bit hard. As a regular contractor I
work hard to keep that line very clear.

[1]
[http://www.irs.gov/businesses/small/article/0,,id=179115,00....](http://www.irs.gov/businesses/small/article/0,,id=179115,00.html)

[2] <http://en.wikipedia.org/wiki/Permatemp#Vizcaino_v._Microsoft>

~~~
hga
All true, but he'd talking about temp-to-hire (which I've done with success
(well, I wasn't the owner, just the direct report of the employee). And the
author of the article pretty clearly doesn't want to try to play the Permatemp
game.

~~~
shrike
What is temp-to-hire?? I think the "temp" part is an extended probationary
period, right? I don't think you could fire someone 45 days into a 60 day
probationary period and then expect to not pay unemployment because of some
agreement between the employee and employer. Does the concept of temp-to-hire
exist as law or policy in any government agency?

~~~
dantheman
Temp-to-hire is hiring a person for a temporary period say 3 - 6 months as a
temp with the expectation that if everything works out they'll get a job offer
at the end. If it doesn't then the contract is finished and they leave.

------
DenisM
And you know what that means? If you are a salaried worker this money is
coming out of _your_ pocket!

Think about that! Everybody should plan for occasional unemployment and there
are two ways to go about it:

1\. You save a year worth of expenses all by yourself, and live on that when
hard times come.

2\. You don't save, but the government saves for you (directly via payroll tax
or indirectly via unemployment tax).

On the surface the two approaches are equal as far as worker is concerned. And
yet! In the first case once you save enough you could stop saving and enjoy
the surplus, but in the latter case you can't stop saving no matter how much
you "saved" already.

Just one more benefit of working for yourself. Employment is such an archaic
concept.

------
jakewolf
This post makes no sense. From Illinios State site
<http://www.ides.state.il.us/employer/uitax.asp> Rates for 2010 are max 7.250%
min 0.650% base $12,520 (you don't pay into unemployment insurance for wages
over $12520/yr)

The rate you pay is based on past claims not to exceed 7.250%. How does he get
$20000?

~~~
ratsbane
One successful claim against you changes the rate you pay for each employee.
If your rate is set at 7.25% then for one employee you might pay 7.250% *
$12,520=$907.70. You pay that much for EACH employee, e.g. 10 employees yields
a bill for $9,077.

~~~
ajross
Except that the headline quite clearly tells us that the charge is 20x higher
than that (it's a $20k reason not to hire "someone", not "$20k reason not to
fire 21 people").

Surely the headline would lie for the purposes of exploiting partisan anger?

------
jrockway
Wow, this is pretty conservative for the Times.

I think that if an employee is fired for cause, they should be forced to sell
their organs to pay back the debt (and cost of finding a replacement worker)
to their company. This would make small businesses more profitable, and it
would be an incentive for people to work harder. It would also lower the cost
of organs, allowing the ultra-rich business owners to get a replacement kidney
AND own a vacation home.

What I meant to say is that I think business owners whine too much about
money. If your business is not profitable, then it's time to do something
else... not whine about how your fired employees shouldn't get unemployment
benefits.

(I worked at a small company once, and all I ever heard about was how
everything was too expensive. Health insurance is too expensive. Salary is too
expensive. Taxes are too expensive. Guess what then, you aren't charging the
clients enough.)

~~~
brc
Maybe you should read this article

<http://www.paulgraham.com/gap.html>

It might be convenient to paint all business owners as 'ultra-rich' but the
majority of employment happens through smaller businesses, which generally
aren't in a position to 'charge clients more money'. Ask someone who is
getting a start-up off the ground why they can't just pay everyone more money.

~~~
jrockway
And ask an average person who might work for you why they should subsidize
your likely-to-fail startup with their own health.

It seems like the general consensus on HN is that The Government should
subsidize startups and small-businesses Just Because, but that it's evil when
the same government subsidizes the employee that didn't work quite hard enough
and needs to eat food and live in a house while they look for a job they can
do better. I don't get it.

(I bet if I wasn't so sarcastic when I made the organ-harvesting reference, I
would have been upmodded!)

~~~
brc
I can't speak for the rest of HN, but in my case I want no subsidies from the
Government. What I want the goverment to do is _get out of the way_ so I can
get on with creating wealth for me, my family and any employees I hire. Having
small companies grow into big ones is a net win for the government.

'subsidize your likely-to-fail startup with their own health' Not sure how to
respond to that statement, but all paid employees are offered to exchange
their time and effort for cash compensation. It's up to those individuals if
the exchange is worth it or not. If there is a chance of a detriment to their
health, then they'd need to factor this in.

I think you'll find that your downvotes are because you disagree with the
majority of readers of this site, not because of tone or sarcasm.

~~~
jacoblyles
>"I think you'll find that your downvotes are because you disagree with the
majority of readers of this site, not because of tone or sarcasm."

If he argued that the article author was wrong in a civil tone with a
thoughtful manner, I doubt he would have downvotes. There are highly upvoted
comments on this very thread that disagree with the article author.

