Tax break could encourage low-paying temporary jobs

 

Yesterday, an Ohio House committee heard testimony about legislation (House Bill 343) that would create a new tax break, exempting the purchase of Employment Services (professional staffing firms, including temporary employment agencies) from Ohio’s sales tax. Innovation Ohio offered testimony opposing the bill, which you can find below.

Testimony To House Economic and Workforce Development Committee
Keary McCarthy, CEO and President, Innovation Ohio

Chairwoman and Ranking Member and Members of the Committee.

Employment services, defined broadly as those that locate or find employment for a person or find or locate employees for a position have been subject to Ohio’s sales and use tax since 1993. Employment Services firms supply workers to employers who are looking to fill a staffing need. Employers pay the staffing firm who, in turn, pays the salaries of the workers.

In the past, the services provided by these firms were used to supplement existing staff in periods of temporary worker absence or at times of peak demand. Companies using the services avoid the expense of hiring and training a new employee, a costly venture if the length of time the employee is needed will be short. However, in recent years there has been a trend toward more widespread use of staffing companies to avoid hiring permanent workers. Today, more than 2 percent of the nation’s nonfarm workforce is made up of so-called temporary workers. In Ohio, temporary workers make up 2.5 percent of the workforce, a 50% increase over 2009 levels.

Traditionally, changes in the use of temporary labor has been a relative indicator of the health of the overall economy. Temp workers are often the first to be let go during a downturn, and, in times of economic recovery, firms often hire temp workers before committing to new full-time positions. But that has not proven to be the case in the current recovery from the nation’s recent recession.

Today, even as Ohio’s unemployment rate drops to its pre-recession levels, job gains among temp workers have continued to outpace the growth in permanent positions. In just five quarters, employment in Ohio by temporary agencies rose by 4.3% while Ohio’s overall private sector employment grew by just 1.7%. The Bureau of Labor Statistics forecasts employment by firms in the Employment Services sector to grow by nearly 25 percent over the decade from 2012 to 2022. This compares to total employment growth of 10.7 percent across all sectors of the economy.

And wages paid by Employment Services firms are far lower – while workers in Ohio’s overall economy see average annual wages of $45,482, those working in the temporary sector collect just $30,785.

Staffing companies provide firms with a number of financial benefits, including taking on the responsibility for any workers compensation and unemployment compensation claims, and shielding employers from the need to collectively bargain with this segment of the workforce. Combined, these factors create multiple financial incentives for creating new, long-term positions. Eliminating the sales and use tax on employment services will only continue to promote the growth of temporary rather than permanent hires.