Cardella drops Iowa growth plans, cites soaring unemployment taxes

Cedar Rapids may  lose 500 new jobs over the next three years because rising unemployment taxes convinced fast-growing  Thomas L. Cardella & Associates to look to Texas for future expansion.

The customer contact company was informed last month that its unemployment taxes would be going up from 1.5 percent to 8 percent in 2011, company CEO Tom Cardella said.. The amount is applied to payroll up to the first $24,700 an employee is paid.

The tax jump will cost the company about $900,000, Cardella said, forcing it to make some serious cuts in order to post a profit in 2011.

Iowa Workforce Development recently notified all of the employers covered by the unemployment compensation system that their rates will be going up for the second straight year because the state's unemployment compensation fund has been depleted by heavy claims during the recent recession, Iowa Workforce Development spokeswoman Kerry Koonce said. She said the increase is mandated by a 1990 law which automatically adjust the state's unemployment taxes to prevent the fund from going bankrupt, as it did in the 1980s.

Cardella said his company reviewed its three-year business plan due to the tax increase. It decided to shift all of the 700 jobs it planned to add over the next three years in Texas instead of Iowa, where it had planned 500 jobs in Cedar Rapids, 100 jobs in Grinnell and 100 jobs in Cedar Falls..

The first Texas contact Center is scheduled to open in March 2011 in El Paso. It is expected to be at 200 employees by the end of 2011.

Cardella said he dislikes having to change plans, but it is necessary in order for Thomas L. Cardella & Associates to remain cost-competitive with its rivals in the call center industry.

Koonce said she is not allowed by law to comment on the unemployment claims of specific employers, but said telemarketing and customer contact operators tend to have higher unemployment taxes in general because they terminate more employees.

Cardella said the company has lost many appeals of unemployment claims filed by workers who were terminated, particularly those terminated for violating a rule that they must call in if they don't report for work.

The state does not grant unemployment claims to employees guilty of gross misconduct, but the state's standard for gross misconduct is three unexecused absences from work.

“We didn't give them three days to miss work,” Cardella said.

The state's unemployment appeal panel has repeatedly approved unemployment benefits for workers who “abandoned their jobs” without explanation, Cardella said.

Many members of the Iowa Association of Business and Industry have complained about recent jumps in unemployment taxes, according to John Gilliland, senior vice president of teh business advocacy group.  He said the current system of automatically raising taxes when the fund becomes depleted avoids the need for legislators to make unpopular decisions to raise unemployment taxes. However, it can increase the financial stress on companies who've been laying off workers due to a bad economy.

“When a company is strapped is when they experience-based increases are most punitive,” Gilliliand said. The system is better than what's happened in many other states that have bankrupt unemployment trust funds because they failed to adjust quickly enough, he added.

Texas unemployment compensation fund went bust during the recession, and rates were raised last year to begin paying back more than $1 billion it had to borrow from the federal government. However Cardella said his unemployment rates in Texas will be only about 2.7 percent of payroll up to $24,700 per employee.

Iowa's unemployment tax rates have historically been among the lowest, Iowa Workforce Development syays.

“We'd had no changes in our rates in Iowa for seven years,” Koonce said. “Its only been the past two years during the recession.”

Employers  begin paying the higher unemployment taxes in mid-April 2011, Koonce said. Iowa's unemployment tax rate range from zero to 9 percent, with new employers payings 1.5 percent to 1.9 percent depending on their industry category. In later years, their rates are based on a five-year history of unemployment claims against them.

Cardella said job applicants drawing unemployment frequently fail to respond to calls asking them to come in for an interview, or turn down job offers so they can remain on unemployment. Iowa Workforce Development almost never checks with the company to see if  jobless Iowans who listed Thomas L. Cardella & Associates as an employment contact really applied or considered work with the company, Cardella said.

“There is no loop for the employer to go back to the state and say, “these people turned down a job offer or wouldn't come in for an interview,” Cardella said.

Koonce said Iowa Workforce Development doesn't require job-seekers to list employers' names on their weekly reporting of employer contacts. An unemployed Iowan can turn down a job offer during their irst 10 weens of drawing unemployment if the pay is less than their previous employment, Koonce said. After ten weeks, the state uses a formula to determine the pay requirement at which they can turn down a job offer. The pay level declines with the number of weeks the person has been unemployed.

Employers can and sometimes do contact Iowa Workforce Development to report suspected fraud, such as an individual refusing to accept a good job offer or answering a request for an interview. Those reports will trigger an audit, Koonce said.